Capstone Copper Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2024

There are 10 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to the KapStone Copper First Quarter 20 24 Results Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. 4. I would now like to turn the conference over to Mr.

Operator

Gerald Annette. Please go ahead.

Speaker 1

Hello. I'd like to welcome everyone to Cap Q1 financial and operational results are available on our website and on SEDAR Plus. If you are logged into the webcast, we will advance the slides of today's presentation, which are 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. Following our brief remarks, there will be an opportunity for questions.

Speaker 1

Please note that 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 are available on our website and on SEDAR Plus. And finally, I'll just note that all amounts we will discuss today are in U. S.

Speaker 1

Dollars unless otherwise specified. Now I'll turn the call over to John McKenzie.

Speaker 2

Thanks, Gerald. Good afternoon, everyone in North America and Europe, and good morning to those dialing in from Australia. We're pleased to present our Q1 2024 results and achievements. Starting with Slide 5, we produced just over 42,000 tons of copper at consolidated C1 cash costs of $2.88 per pound in Q1, and we're reiterating our 2024 guidance. We started off the year strongly with production close to the midpoint of our first half guidance range.

Speaker 2

Our sulfide cash costs of $2.55 per pound were also at the midpoint of our guidance, while costs in our smaller cathode business were higher than planned. As a reminder, with our transformational months of added development project ramping up this year, sulfides will make up a significantly larger proportion of our production base, contributing to reduction in our consolidated cash costs. The MVDP remains on track and on budget. We're on the cusp of producing 1st salable concentrate and our team is focused on ramping up production to the design run rate levels. I was in Chile a couple of weeks ago, and I spent some time at sites reviewing our progress and meeting with our team.

Speaker 2

I'm very pleased with the work done to date and believe the future of Monteverde looks extremely positive. As part of my meetings in Chile, I attended a SESCO dinner where President Gabriel Borics reiterated the government's desire to continue to develop an investor friendly environment for copper miners with the objective of increasing foreign private investments in copper mining. This bodes well for Capstone Copper as we progress our feasibility studies for MVDP optimized and our Santo Domingo project in the Atacama region, which we plan to release by the middle of the year. On the corporate side, our net debt decreased substantially from $927,000,000 at year end 2023 to $740,000,000 at the conclusion of the Q1. Our balance sheet is in excellent shape as we ramp up Manseverde ahead of our next leg of growth.

Speaker 2

Also of note in the quarter, Orion Mine Finance, which was previously our largest shareholder, reduced their ownership position from 24% to 12% following 2 secondary placements of shares. Orion's 2nd sell down of the quarter was placed directly into Australia by our secondary listing, which trades on the Australian Securities Exchange under the ticker symbol CSC. We're encouraged by the success of our CDIs to date, and we believe we're on track to be considered for the ASX 300 Index rebalance in September. The ASX is a premium market with a long track record as a platform for mining companies and we're excited to continue growing our investor base in the Asia Pacific region. And with that, I'll pass over to Ravan for our financial results.

Speaker 1

Thank you, John. We are now on Slide 6. In Q1, we recorded copper production of 42,100 Tonnes and copper sales just shy of 41,000 tons. LME copper prices during the quarter averaged $3.83 per pound, up close to 4% compared to $3.70 per pound in Q4 2023. Our realized copper price of $3.85 per pound was largely in line with the LME average price.

Speaker 1

Today copper prices are closer to $4.50 per pound. Every 10% increase in the copper price in 2024 impacts our EBITDA by around 125,000,000 dollars And next year with MBDP at full rates, a 10% move in copper prices would increase our EBITDA by just over 200,000,000 dollars We recorded a consolidated C1 cash cost of $2.88 per pound per payable pound in Q1, which were $0.03 above our first half guidance range. We expect a large step change in our consolidated unit cost in the second half driven by our Manta Verde development project down to $2.10 to $2.30 per pound. Adjusted EBITDA in Q1 of 80,100,000 increased by 21% year over year for the Q1 of 2023, largely due to higher copper sales and lower cost. Moving on now to Slide 7.

Speaker 1

On the left hand side, we summarize our available liquidity, which as at March 31, 2024 was approximately $540,000,000 which includes $132,000,000 of cash and short term investments and $400,000,000 of undrawn amounts on our $700,000,000 corporate revolving credit facility. Our liquidity position increased substantially from year end driven by net proceeds of $253,000,000 from our primary equity raise in February. As a result, we finished Q1 with a net debt position of 740,000,000 and an attributable net debt balance of $591,000,000 Our balance sheet is in a very strong shape during the ramp up of MBDP ahead of our next phase of growth. The chart on the right hand side of the page illustrates our EBITDA sensitivity at various copper prices. In the first two bars, you can see that we expect significant near term EBITDA growth with mantleverde sulfide at full run rate production.

Speaker 1

This year in 2024, EBITDA will more than double from 2023 levels with MBDP ramping up. And with MBDP at full capacity in 2025, we expect to generate between $1,200,000,000 to $1,300,000,000 of EBITDA at copper prices of $4.50 per pound equivalent to today's pricing levels. The EBITDA generation associated with Mantra Verde will enable us to focus on generating free cash flow to delever our balance sheet and be quickly below one times net leverage at spot copper prices, which provides additional financing capacity to advance our future growth pipeline in terms of Manto Verde optimized, exploration and Santo Domingo depending on market conditions. Now I'll hand it over to Caso for the operations review.

Speaker 3

Thanks, Robin. We're now on Slide 8. Pinto Valley produced 15,672 tons of copper at a C1 cash cost of $2.53 per payable pound during Q1, which are competitive compared to similar grade copper mines in the USA. The production performance was above the high end of our first half guidance range, while our cash costs were below the guidance range, driven by stronger than expected grades. We are starting to see the benefits of our newly implemented asset integrity program and there is still room for us to increase the mean time between failures and improve our overall availability to be able to deliver more consistently higher throughput.

Speaker 3

Water inventory levels are positioned well ahead of the dry season. Moving to Slide 9. Postman Mine delivered a solid first quarter producing 6,006 tons of copper at a C1 cash cost of $1.93 per pound. The mine demonstrated another quarter of nameplate mining rates after transitioning to the new

Speaker 4

cut and fill mining method earlier

Speaker 3

last year. Costs have increased 12% year over year due to a stronger Mexican peso and additional contractor costs with more cut and fill as part of the mining sequence in 2024. Our Mantos Blanco asset is highlighted on Slide 10. Total sulfide and cathode production yielded 10,967,000 tonnies of copper at a C1 cash cost of $3.05 per payable pound. Our sulfide operations ran at a consistent level to what was seen in the back half of last year, which is below the nameplate capacity of 20,000 tonnes of ore per day, largely driven by bottlenecks in the tailings dewatering area of the plant.

Speaker 3

During the Q1, we continued to execute on our plan to address plant stability that includes improved maintenance and optimization 2024, we expect to install the final pieces of equipment, notably a surge tank and pumps that will allow us to ramp up the plant to its nameplate capacity in the second half of this year, which will also drive a commensurate decrease in costs. We are confident that we have both the team in place and the asset that will support full run rates. Our efforts are focused on achieving this and after that we will recommence our studies related to the mancos blancos Phase 2 as we believe the ore body can support a further expansion. We will also looking to increase our exploration efforts at mantos blancos as we believe we have highly prospective near mine targets that could allow us to improve our grade profile and increase our tonnages over time. Now on to Mento Verde on Slide 11.

Speaker 3

Q4 2023 oxide production was 9,476 tonnies of copper in cathode at C1 cash costs of $3.82 per payable pound. While costs were above our guidance range for the cathode business in Q1, we anticipate a step change in the cost profile for Mento Verde following the ramp up of the MVDP sulfides. During the quarter, important commissioning progress was achieved. Notably, we have now fed ore to the grinding circuit, principally the SAG and Ball Mills, and we remain on track for our remaining key commissioning milestones. 1st salable concentrate during the Q2 and the achievement of nameplate operating rates in the 3rd quarter.

Speaker 3

Once the operation is fully ramped up, Mantoberde will produce approximately 120,000 tonnes of combined cathode and copper in concentrate with over 30,000 ounces of gold per year. We advanced the feasibility study for our Mantoverde optimized project during the quarter, and we plan to release it by mid year. MVDP optimized is a brownfield expansion to increase ore throughput at Manto Verde development project by about 40%, and we expect this project to be very capital efficient. Slides 12 through 15 show our construction and commissioning progress at several key areas of the MVDP. Slide 12 shows the assembly of the 4th and final shovel.

Speaker 3

The 3 previously assembled electric shovels commenced mining activities last year and led to the stockpiling of over 5,000,000 tons of sulfide ore. We also have a further 6 months of sulfide ore exposed in the pit, further derisking the ramp up. Slide 13 shows a close-up of the SAG and Ball Mills, with the flotation circuit in the background on the left. As I mentioned, the mills have been spinning under power, and we have introduced material during the Q1. Specifically, the SAG and Ball milling circuits have been tested at 100% charge load and we are approaching a 30 day running test.

Speaker 3

Position behind the mills and to the left are various portions of the flotation circuit. We have commissioned the rougher flotation cells, which are ready for full throughput testing. The cleaner columns, tower mill, scavenger circuit and filter press are also in various commissioning stages, and we are on track for 1st salable concentrate in Q2. On Slide 14, you will see the tailings storage facility and in the back you can see our water reservoir, which has been filled with desalinated water for use on-site. What you'll also notice from this slide, Monteverde is one of the driest places on earth and sits at about 900 meters above sea level.

Speaker 3

In our view, it is amongst the best places on earth to have built and be ramping up a copper concentrator. Lastly, on Slide 15, you'll find our desalination plant on the coast about 40 kilometers away from our mine. It has now been expanded and ramped up to support MVDP. We are excited to continue ramping up the Monteverde development project over the next few months. Turning to Slide 16, we were targeting an initial 2 year program focused on our highly prospective M Monteverde Santo Domingo land package.

Speaker 3

We believe this program will further demonstrate the world class nature of the district. With Monteverde near completion, we can now focus on growth opportunities, including the plan to execute a $25,000,000 exploration program that will include over 61,500 meters of drilling. This program has 3 initial objectives, which are to target higher copper grades, explore new areas adjacent or inside the current Monteverde pits with potential to add new reserves and or resources and thirdly, to test priority targets in the northern area of Monteverde land package with the potential to support the Monteverde Centodimis Bingo district. The initial program is broken down between near mine targets and northern district targets. On the slide, you can see the Monteverde, Santo Domingo district on the right hand side.

Speaker 3

In the Northern area of our Monteverde land package, there are several high priority targets identified with either outcropping copper mineralization or a set of geological and geophysical features resembling Menta Verde mineralization style. The current Mento Verde pits trend along the Mento Verde fault. And to the north is approximately 12 kilometers of underexplored area along the Atacama fault. This fault line contains several historic artisanal mine workings and in our view, the northern area of the Monteverde district is highly prospective. In the northern district of Monteverde, we are targeting a 200,000,000 to 300,000,000 tonne ore deposit, grading between 0.4% to 0.6% copper.

Speaker 3

Beyond this initial program, we are also identifying our priority exploration targets at Santadomingo. Two important areas of focus will be drilling out the oxide resource at Santo Domingo, which could be used to supplement our underutilized SXEW plant at Mantoverde that is only operating at 2 thirds capacity. The second is to advance exploration for further copper bearing sulfides closer to the current pits. Turning to Slide 17. We have profiled the near mine targets that we believe have potential to supplement our grade profile and support mining for longer at Manta Verde.

Speaker 3

We plan to explore continuity along the Santa Clara corridor and test areas north of the pit whilst also drilling for sulfides between the Manto Russo and Kuroki reserve pits. Overall, the team has identified 9 targets for near mine exploration that we believe could impact our grade profile at Monteverde in the future. The exploration program is the start of what we believe will define copper mining in the Monteverde, Santa Domingo district for many decades to come, targeting over 250,000 tons of copper production per year. Now over to Wendy King for the sustainability review.

Speaker 5

Thank you, Kassel. We're now on Slide 18 with a review of our sustainability highlights for Q1. At mantos blancos, 100 percent of electricity use in 2023 was covered by renewable energy certified sources as defined by the International Renewable Energy Certificate Standard. As part of our sustainable development strategy, we are working towards transitioning to at least 50% renewable electricity in Chile by 2025 and greater than 90% renewable electricity across Capstone by 2,030. Also in Chile, both Mantos Blancos and Manto Verde received ISO 5,001 Energy Efficiency Management System Certification.

Speaker 5

ISO 5,001 was developed for organizations committed to addressing their impact, conserving resources and improving their bottom line through efficient energy management. We believe this management system will make it easier for our organization to integrate energy management into our overall efforts to improve quality and environmental management. Our sustainable development strategy also includes an interim target to reduce greenhouse gas emissions from fuel and power by 30% by 2,030 compared to a 2021 baseline year. To support this, GHG emissions and energy management teams were formed at all our sites to lead the development of our operating level greenhouse gas and energy reduction plans. During the quarter, we also completed a climate related risk and opportunity assessment and scenario analysis.

Speaker 5

This will further align Capstone with the task force on climate related financial disclosures. This quarter, we began including a section dedicated to ESG within our management's discussion and analysis, and we expect enhanced disclosure in the second half of twenty twenty four. In 2023, both Mantra Verde and Mantos Blancos were awarded the copper mark and Pinto Valley and Cozamin are actively striving to replicate this. During Q1, PV and Cozamin updated their self assessment and GAAP closure projects to align the latest Coppermark Version 3 and both sites are aiming to sign commitment letters in 2024. Lastly, all our sites remain active in our local communities, supporting various initiatives and priorities.

Speaker 5

Some of the highlights from the Q1 include the Pinto Valley Creek cleanup, the graduation of the 3rd cohort of the Learning for Development Community Training Program at Monteverde and the graduation of the 1st cohort of all female haul truck operators at Manto Verde. Creating a positive impact in the lives of our people and our communities is core to our purpose at KapStone. We are always pleased to discuss our ESG performance and initiatives with analysts and investors and are available to take calls to discuss further. And with that, I'd like to pass it back to John.

Speaker 2

Thanks, Swendy. Turning to Slide 19, 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 full run rate to bring us to a consolidated annual production level of around 260,000 tons of copper at costs around $2 per pound. As Kessel mentioned, we plan to release a feasibility study for our Montevideo Optimize project by mid year, which is a low risk brownfield expansion that we think will unlock another 20,000 tons of copper with a highly attractive capital efficiency of around 7,500 dollars per ton of annual production. From there, we have a pathway to over 400,000 tons of copper production with the addition of our Santo Domingo project, which is 35 kilometers from Monteverde, and which together will create a world class mining district in that region of Chile.

Speaker 2

Beyond that, we have further upside across our portfolio with another low risk brownfield expansion opportunity at Montes Blancos, the ability to unlock cobalt in our MVSD districts and lastly, the potential development of a world class district around our Pinsa Valley mine in Arizona. Turning to Slide 20. We highlight the timelines for some of the studies that I've mentioned and for other milestones as we execute on our growth plans. Building a copper production growth profile like what we have at Capstone doesn't happen overnight. At Monteverde, where we are about to produce 1st saleable concentrate, the decision to grow production was taken nearly 9 years ago.

Speaker 2

Looking across the industry, the pipeline of copper projects is smaller than it's been at any time in the past 20 years. Meanwhile, the world is going to need an enormous amount more copper going forward. As an example, it takes 8 times as much copper to produce 1 megawatt of offshore wind energy as it would to produce 1 megawatt of coal or gas fired energy. Expansion of the energy grid and distribution networks will also require vast amounts more copper. And most recently, we're learning about more about the data sensors that will be required to support artificial intelligence.

Speaker 2

In our view, we're in the early stages of a new era for the copper markets, and it's a great time for us to be ramping up production at our flagship Montserveira assets. With that, we're now ready to take questions.

Operator

Thank Your first question comes from the line of Dalton Baretto from Canaccord Genuity. Please go ahead.

Speaker 6

Thank you. Good afternoon, John and team. I want to start by asking about MVDP. You've had ore start to go through the mail as of March. And I'm just wondering what your opinion is on how the circuit's responded so far, not just from a metallurgical perspective as well as just a general operational perspective?

Speaker 6

Thank you.

Speaker 2

Yes. Thanks, Dalton. I'm going to pass it across to Kassel to answer a bit more fully, but I would say that I was down there a week or so ago. And I would say the plant is responding sort of exactly as planned. I would say we're very pleased with progress.

Speaker 2

And certainly, sort of what we're seeing down there is very, very much in line with our expectations. So maybe just for a slightly more fulsome answer, CECL?

Speaker 3

Sure. Yes, it's a bit early in the process to be talking about metallurgical characteristics. However, the grinding circuit and the crushing circuit is working extremely well. We're just getting into, in the next few weeks, looking at metallurgical responses. But everything is going according to plan.

Speaker 3

Knock on wood, when you start these ramp ups and these late commissioning cycles on these things, what you're hoping for is there's no major failures. And everything is normal behavior under a ramp up or commissioning process. So we're really encouraged. We're remaining on track, on schedule, and we're really happy with the progress we're making so far.

Speaker 6

Great. Thanks, Kassel. And then maybe switching gears to Santo Domingo. As you're putting the final touches on the report, if I think back to the November 2022 release with all the synergies, can you remind me, John, which of those will be included in this report?

Speaker 7

Yes.

Speaker 2

So what we're incorporating is quite certainly a number of the synergies that we identified at that time. The synergies come in various buckets. And some of them are efficiencies, I didn't have having either infrastructure or operations in the same neighborhood. Obviously, some of them are scale synergies that we have between the assets. I would however say that the biggest synergies are really those that generate revenue ultimately.

Speaker 2

And those are, for example, the processing of the oxides, oxide ore that we have at Santo Domingo at the Montsevatia S-six CW plants. And for example, the sort of joint processing of cobalt from both sites. Now at this stage, those studies are not yet at the same level of feasibility that the rest of the Santo Domingos project is at. So those will be in the opportunity section of that feasibility. And we expect sort of to in relatively short order thereafter be able to incorporate those opportunities into the base case.

Speaker 6

Thanks, John. And then maybe if I can just squeeze one more in. As you are looking ahead to sanctioning Santadomingo and with your former employer John in Plano, I'm wondering how you think about the buy versus build argument?

Speaker 2

Yes. I think we're in a very, very fortunate position that the opportunities we have are actually very high on the capital efficiency curve. And so we've just completed the construction of Monteverde at around $11,000 in annualized ton. Our estimate for, Monteverde optimized is around $7,500 an annualized ton. And we also believe that Santo Domingo, it's got a mixture, I'd say, of sort of greenfield and brownfield characteristics, is going to be somewhat higher than Monteverde, it's still going to be extremely competitive.

Speaker 2

And so I think our perspective on this is, what the world really needs over the coming decade or 2 decades is going to be a lot more copper. And that has to come from somewhere. And I think we're in the fortunate position where we're able to bring it online in an extremely capital efficient way. And that's really a reflection of 3 things. The one is, we've got great grades at those deposits.

Speaker 2

We already have very, very significant infrastructure in the district. And then finally, it's just a very good location to be building projects in. It's low altitude, it's close to the coast, and it's pretty near to some major mining centers. So I think from our point of view, our strategy to pursue our sort of internal organic growth remains very much intact.

Speaker 6

Thanks, John. I'll leave it there.

Speaker 2

Thanks, Dalton.

Operator

Thank you. And your next question comes from the line of Francois Cudell from Scotiabank. Please go ahead.

Speaker 1

Hi, good afternoon. I'm just sort of picking up where Dalton left off. Just wondering what your thinking is in terms of how quickly would you move ahead with the Manto Verde optimization project as you ramp up here in terms of Phase 1?

Speaker 2

Yes, it's a good question. I think the way we're looking at it is we fairly recently submitted the permit application for that project. It's a DIA and that's we would expect to get that sort of probably in the range of somewhere around 10 to 12 months. It's not a complicated project. There's not really sort of anything really we're changing to the overall footprint of the business.

Speaker 2

And so that would really position us to sort of early next year in a position to actually sort of commence with the project. So we're looking at progressing the detailed engineering prior to that. We're looking at placing some long lead time orders earlier than that. And what we've sort of said on Monteverde is we're going to be ramping up during the Q3. We expect to get sort of steady state production in the Q4.

Speaker 2

We would certainly be looking to then from that point onwards, as we bring on these sort of incremental equipments that's involved in Monterrey optimized, be moving up to that 45,000 tons a day as we progress towards the back end of 2025.

Speaker 1

Okay. And are you still envisioning CapEx for that project circa $150,000,000 or so? Yes. Okay. And then just finally one more if I could.

Speaker 1

I'm just wondering if you can give us an update on the JV process for JV sale process for Santo Domingo?

Speaker 2

Sure. So, I'm probably actually published the updated feasibility, we can't really progress that process meaningfully. So we expect to have that updated feasibility around the middle of the year. And then our intention is during the 2nd part of this year to really sort of engage with those parties that we already know have expressed a strong interest in participating in Santo Domingo. So, we would hope to really sort of have a lot more clarity on who that partner is going to be by the end of this year.

Speaker 1

Perfect. Thank you very much.

Speaker 2

Thanks, Harish.

Operator

Thank you. And your next question comes from the line of Ralph Profiti from 8 Capital. Please go ahead.

Speaker 8

Thanks, operator. Good afternoon, everyone. Cash flow, it sounds like from a technical perspective, the separation between sort of a grinding circuit and flotation was sort of equally technically challenging. And I'm just wondering as you move to sort of particle separation stage, what are the kind of key deliverables of the design criteria that you'll be keeping an eye on?

Speaker 3

Sure, Ralph. Thanks. Actually, in my experience in ramping up copper concentrators, the key component that you focus on in the beginning of a ramp up is throughput and it's the most important because obviously if you can't crush or grind the rock, you have no chance of liberating any of the minerals. And all our reagents and our flotation circuits and all these types of things is just moving slurry. And actually, it floats quite easily, and we know that it floats very easily, the chalcopyrite, almost immediately.

Speaker 3

So what you're doing in the back half of a ramp up is you're optimizing going from sort of low 80s to almost 90% recovery. And it's only that 10% you're working with and you're tuning and you're doing that sort of thing. So what we're seeing is at a 100% load charge, we're meeting the P80 specs that we require for the flotation cells to be able to liberate the chalcopyrite and do the flotation. So we're just bringing on in the last sequence of our commissioning some of our cleaner circuits, our scavenger circuit, our copper thickener and our filtration, which will allow us to start floating that material. But as any sort of ramp up of a copper concentrator, you always focus on the crushing and grinding first, then you focus on the flotation, then you focus on the hardening of the crushing, grinding, tailing circuit, you do the flotation and then when you get your throughput to a consistent and sustainable level, then you start tweaking the recovery of copper to move it up.

Speaker 3

But everything is going exactly as planned to date. And again, I'll knock on wood.

Speaker 8

Okay. Thanks. Quite encouraging to hear. As a follow-up, when you look at that exploration slide at MBDP, it sounds like between outcropping and what the IP has done that opportunities are both for oxides and sulfides. I'm just wondering if that's the same strategy at Matos Blancos where you also talked about stepping up the exploration efforts where oxides and sulfides potential are both something that we could see?

Speaker 2

Yes. I'll just make a couple of comments and then pass across to Kassel. But yes, look, just by way of example, an Anglo American bought Munces Blancas in 1980, it had 5 years of life. And every time we drill there, we continue to sort of extend the resource and the reserve. So I think right now we have around 16, 17 years of life at Montes Blancos.

Speaker 2

I think it's the longest Montes Blancos has actually had in terms of its life for the past 30 or 40 years or so. But what we do know is there remains huge prospectivity sort of both at depth in the pit. Historically, we haven't been able to drill at depth in the pit because of the old underground workings. Now that we have mined the pit through those, we actually do have the ability to sort of see what's at depth. And actually, couple of drill holes we've put into the bottom of the pit have continued to go through very attractive grade, sort of copper beyond there.

Speaker 2

So that's said around the lease area, there are certain other areas where we think are very highly prospective for either oxides or sulfides. And we are in a very fortunate position where we now have processing facilities for both. So to an extent, our exploration programs are focused on both. We see sort of significant opportunity both on the sort of oxides and sulfides at Montes Blancos.

Speaker 8

Encouraging. Thanks, John. Thanks, Kasro.

Speaker 4

Yes. Thanks, Rob.

Operator

Thank you. And your next question comes from the line of Bryce Adam from CIBC Capital Markets. Please go ahead.

Speaker 7

Thank you, Capstone for the update and presentation. I wanted to clarify the milestone for MVDP nameplate capacity. When you guide to achieving nameplate rates in Q3 of this year, does that mean reliably and consistently running at nameplate or does it mean doing so for a period of X many days? I'm just thinking about it, let's say that first concentrate is produced here in May, June, that implies a ramp up or could imply a ramp up to full capacity in about 4 months, which if done, I'd be looking at that as very strong performance. And just wanted to clarify what the definition is around that milestone?

Speaker 3

Sure, Bryce. We sort of move in to what we call a commercial ramp up phase after we've hardened the grinding and crushing circuits for a 10 day run. And so we're beginning that process now where we feel we're getting to the stage where we're able to accomplish that. So that to us is the technical milestone of when we move into the official commercial ramp up phase. You're quite right to say that 4 months to get to sustainable full nameplate throughput production is a great metric to achieve.

Speaker 3

We believe we're on target for timeframes like that. In the initial feasibility, if one was to look back at the 40three-1 101, I believe it was around 6 months. So we're right around that timeline now if you do it. But with the way things are going, we don't see any reason why we can't achieve what we've laid out. And so far, everything is going extremely well.

Speaker 7

That's great to hear. And does it also mean design recoveries in the same timeline?

Speaker 3

Yes. So the recovery curve is a little slower than the ramp up curve, but yes, we do see us getting close to that. It's a little longer, the curve to achieve that, but we consider when we've got 80% to 90% of the design recoveries that meets the commercial ramp up definition and then we continue tweaking from there.

Speaker 7

Okay. Thank you. I appreciate that. Yes, not at all.

Operator

Thank you. And your next question comes from the line of Craig Hutchison from TD Bank. Please go ahead.

Speaker 9

Hi, guys. Good afternoon. I was wondering if you could provide some color on your concentrate optic commitments, just given how tight the market is right now. I mean, one of your peers last night announced that they're receiving negative TCRCs actually being paid to take their concentrate. I wonder if you could just provide some color across your operations, whether you have commitments, whether you have some exposure here to spot market to get lower TCRCs?

Speaker 9

Thanks.

Speaker 2

Right. I want to flip that question across to Gerald who aside from Investor Relations also she covers our marketing area. So Gerald, proceed.

Speaker 1

Yes. Thanks, Craig. I kind of expected that question. So, did a review of this. We do have considerable unencumbered tons to move.

Speaker 1

We're in the process of discussions with various traders and smelters. I'd say the big impact would be 2025 where at SESCO and Santiago, we are happy with the discussions. And I would say that it is clear to us that the benchmark is likely to move considerably lower next year. But in addition to that, we can lock in tons today for 2025 and even in 2026 and 2027 at terms that are extremely attractive and not seen in decades. So I would say that a 50.05 dollars decrease in our effective treatment charges would lower KapStone's consolidated C1 cost down by over $0.11 a pound for next year.

Speaker 1

So when John said that NBDP at full rates were going to be around $2 a pound, then if this happens like I mentioned, we'll be in around the $1.90 range.

Speaker 9

Okay. So it sounds like the exposure is more for 2025 rather than upside I guess in terms of cost this second half this year?

Speaker 1

Yes. We've made so we may have a few parcels this year and to get negative treatment charges is on the table. But I'd say the big impact for us is 25.

Speaker 9

Okay, great. And maybe just one last question for me. Just on the oxides, the costs were higher, I guess, than you guys expected the Q1 here. Can you just talk to what drove that and whether that's a 1 quarter thing or whether we should see some higher costs on the oxides into Q2 as well? Thanks.

Speaker 3

Hey, Greg. Yes. We were a little bit behind probably in our ambitions on the amount of cathode we were going to produce. And so we're catching up now more or less in it. And some of it had to do with placement and some of it had to do with some irrigation, but minor operational issues.

Speaker 3

But it's nothing that we see ourselves not catching up on and correcting that in the second half of the year.

Speaker 9

Okay, great. Thank you.

Operator

Thank you. And your next question comes from the line of David Ratcliffe from Global Mining Research. Please go ahead.

Speaker 4

Hi. Good morning, good afternoon, John and team. First question is on Pinto Valley, which is obviously tracking well to the guidance and backing up a strong Q4. Maybe could you talk to the grade profile and what it looks like over 2024? Are you still looking for better grades in the second half?

Speaker 4

And was the high grades in Q1 to plan? Or did you pull forward some grades? Thanks.

Speaker 1

Sure.

Speaker 3

Yes. So there was a little bit of resequencing in the first half due to some minor operational issues. So there was some surprise in the grade and there was some resequencing. But I think overall, I believe the guidance is still current and will balance out for the year on the grade profile. What I would say is, we've been increasing steadily the throughputs from Q4 to Q1 and now we're seeing it again in Q2 at Pinto Valley.

Speaker 3

So our work on our asset integrity program is paying dividends now and we're really seeing it in the consistent throughput. So I'll be happy to see in the next quarters that the mine will finally be challenged against what the plant can meeting more consistently nameplate throughput numbers. So yes, so I think it's still on guidance. We did sort of do a little change in sequence, but we're back on plan now.

Speaker 4

Okay. And then maybe shifting to And I think you And I think you're now saying you want to reach the 20,000 ton per day mark in the second half of the year. So it sounds like that's been pushed back a little bit. So you're maintaining guidance. So how do you actually catch up at maintenance point in sale point?

Operator

Yes. So

Speaker 3

basically what it was is when we initiated the guidance, we had some engineering on the area of the plant that is causing us the sustainability and the maintenance issues, which was I think we've described several times before on the tailings deposition and transportation portion. So we've gone through a large engineering project. We've gone into procurement. We're into civil earthworks and pouring foundations for the various positive displacement pumps and pipes and tanks and infrastructure that are required to get more sustainable production. Some of the procurement and some of the work in engineering took a little longer and some of the scope of work increased.

Speaker 3

So that's why we've sort of pushed out getting to the nameplate capacity of 20,000 tons into sort of like we believe the sort of Q3 area. We say H2. We're still waiting for delivery of some of the items, although all items are on the current new schedule to be ready for assembly in the middle of this year. As far as catch up goes, we'll see what the opportunities are in sequencing in the mine. So that's being worked out now to see if we can maintain the guidance production from that one plant.

Speaker 3

But we believe overall as a company that we'll meet the guidance with all the mines together because we have opportunities elsewhere.

Speaker 4

Brilliant. Thank you very much. I'll pass it on.

Operator

Thank you. There are no further questions at this time. I'd like to turn the conference back to Mr. John McKenzie for closing remarks.

Speaker 2

So we look forward to updating you again in early August with our Q2 results. And until then, stay safe 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

Thank you. That concludes our conference today. Thank you for participating. You may all disconnect.

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Earnings Conference Call
Capstone Copper Q1 2024
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