Hudbay Minerals Inc. Q1 FY2022 Earnings Call

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hudbay Minerals Inc. First Quarter 2022 Results Conference Call. I would like to remind everyone that this conference call is being recorded today, May 10, 2022, at 8:30 a.m. Eastern Time. I would now turn the conference over to Candace Brule, Vice President, Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to Hudbay's 2022 First Quarter Results 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, and we encourage you to refer to it during this call. Our presenter today is Peter Kukielski, Hudbay's President and Chief Executive Officer; Accompanying Peter for the Q&A portion of the call will be Steve Douglas, our Senior Vice President and Chief Financial Officer; Andre Lauzon, our Senior Vice President and Chief Operating Officer; and Eugene Lee, our Senior Vice President, Corporate Development and Strategy. 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 uncertainties, 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.S. dollars unless otherwise noted. And now I'll pass the call over to Peter Kukielski. Peter?

Thank you, Candace. Good morning, everyone, and perhaps good afternoon and even good evening to some of you. Thank you very much for joining us. I wanted to begin by acknowledging the conflict in Ukraine. While it has exacerbated global inflationary pressures and supply chain disruptions, these impacts are inconsequential compared to the hardships and losses experienced by the many innocent civilians whose lives have been impacted by this very unfortunate situation. Our hearts go out to all of those affected. In this presentation today, I'll give a brief overview of our first quarter financial and operating results, discuss highlights from our recent annual reserves and resources announcement and provide an update on the ongoing progress at Copper World and our other growth initiatives. Before we dive into quarterly results, I wanted to congratulate a key member of our technical team, Matthew Taylor, our Executive Director of Metallurgy Technical Services. Last week, Matt received the 2022 Mineral Processor of the Year award at the CIM and CMP Society Ceremony. He was recognized for a significant mineral processing achievement relating to his work on the Snow Lake and New Britannia processing strategy with the implementation of a novel copper flotation circuit. We look forward to his continued contributions at our many growth initiatives, including Copper World. Beginning on Slide 3. We maintained steady operations during the first quarter despite being faced with a number of external challenges, including COVID-related absenteeism, extreme weather conditions and inflationary cost pressures. This was a testament to our effective risk management systems and focus on operating efficiencies. As a result, we have reaffirmed our full year production and cost guidance for 2022. Our consolidated copper production in the quarter was 24,700 tonnes, in line with our expected quarterly cadence for the year as we anticipate significantly higher copper grades in Peru later this year. Consolidated gold production decreased by 16% compared to the fourth quarter primarily due to lower gold production in Peru as COVID-19-related absenteeism and high rainfalls limited production from the Pampacancha pits. Consolidated zinc production in the first quarter was 4% lower than the fourth quarter, primarily due to lower zinc grades at Lalor and 777. Consolidated cash costs increased to $1.11 per pound of copper from $0.51 in the fourth quarter. This increase was a result of higher milling costs and lower copper production in Peru as well as higher general and administrative costs in Manitoba. Consolidated sustaining cash cost increased to $2.29 per pound in the first quarter compared to $1.95 in the fourth quarter due to the same reasons affecting cash costs, but partially offset by lower sustaining capital expenditures and capitalized exploration. Both measures were slightly above our 2022 guidance ranges, primarily due to lower by-product credits as a result of lower sales in Manitoba, which I'll provide more details on shortly. Consolidated cash costs and sustaining cash costs are expected to improve in future quarters to be within the 2022 guidance ranges with higher expected copper production and contributions from precious metals by-product credits throughout the year. First quarter unit operating costs were in line with 2022 guidance ranges at $12.37 per tonne in Peru and CAD 176 per tonne in Manitoba. This strong cost performance was achieved despite continuing to experience broad-based inflationary pressures caused by higher input prices for many services and consumables such as power, fuel, grinding media, freight and insurance. Operating cash flow before change in noncash working capital was $77 million during the first quarter, reflecting a decrease from the fourth quarter, primarily as the result of lower copper gold and zinc sales volumes in Manitoba, partially offset by higher silver sales volumes and higher base metal realized prices. At the end of March, we announced that first quarter Manitoba sales were impacted by limited railcar availability. This resulted in excess inventory of about 7,000 tonnes of copper concentrate, which contains high amounts of gold and 6 million pounds of refined zinc at the end of the first quarter. Had the excess inventory been sold during the quarter, we would have realized approximately $45 million of incremental revenue, assuming end-of-quarter commodity prices. Our inventories are expected to be recognized as revenue and converted to cash as levels are drawn down over the next several months with increased railcar access as weather conditions improve. First quarter adjusted net earnings per share was $0.02 after adjusting for a non-cash gain related to the quarterly revaluation of the Flin Flon environmental provision which decreased as a result of higher long-term risk-free discount rates. First quarter adjusted EBITDA was $110 million lower than the previous quarter, primarily as a result of the lower sales volumes. We exited the quarter with $213 million in cash as well as undrawn availability of nearly $357 million under our revolving credit facilities. Given the elevated inventory levels in Manitoba at the end of the first quarter and the positive expected quarterly production cadence, our cash balance is forecasted to grow throughout the remainder of the year based on current commodity prices. On Slide 4, we summarize our Peru operating results. During the quarter, our Peru business produced over 19,000 tonnes of copper, 10,800 ounces of gold, over 500,000 ounces of silver and 207 tonnes of molybdenum. Production of all metals was lower than the fourth quarter, primarily due to a planned semiannual mill maintenance shutdown in January and lower grades. As previously disclosed, full year production in Peru is expected to benefit from significantly higher grades in the fourth quarter of 2022, and we have affirmed or reaffirmed our 2022 production guidance for Peru. Total ore mined declined during the first quarter due to high rainfalls and COVID-related labor shortages which resulted in delays affecting the water management system and lower production from Pampacancha. Ore milled was lower than the fourth quarter due to the planned mill maintenance shutdown in January. Milled copper grades and recoveries were lower than the previous quarter, but were consistent with the mine plan. Milled gold grades and recoveries were lower than the previous quarter due to less ore from Pampacancha this quarter. With the rainy season now behind us in Peru, we expect Pampacancha ore production to return to higher levels in the second quarter. Peru combined unit operating costs in the first quarter were within the guidance range, but higher than the fourth quarter due to continued inflationary pressures on consumables and energy costs and fewer tonnes of ore milled due to the planned mill maintenance shutdown. Despite these cost pressures, full year unit operating costs in Peru are expected to remain within the annual guidance range. Peru's cash cost in the first quarter was $1.54 per pound of copper, higher than the fourth quarter, primarily due to higher milling costs and lower copper production. This was above the upper end of our 2022 guidance range, in part due to lower production and higher costs related to the plant maintenance in the quarter. Cash costs are expected to decline and full year cash costs are expected to remain within the 2022 guidance range with higher expected copper production and contributions from precious metal by-product credits later this year. Peru's sustaining cash cost decreased compared to last quarter due to lower sustaining capital expenditures and lower capitalized exploration. Moving to the next slide on Manitoba. During the first quarter, the Manitoba operations produced 43,200 ounces of gold, 22,300 tonnes of zinc, 5,500 tonnes of copper and 279,000 ounces of silver. Copper production increased by approximately 4% quarter-over-quarter, whereas gold, zinc and silver production decreased by 7%, 4% and 13%, respectively, due to expected grade variability and lower ore mill. Full year production of all metals in Manitoba is expected to be within guidance ranges for 2022. Ore mined at the Manitoba operations in the quarter was lower than the fourth quarter due to employee absenteeism caused by COVID-19, unplanned maintenance requirements of the ore handling system that temporarily affected hoisting ability at Lalor and planned lower production on the 777 as the mine approaches closure in June. The production ramp-up strategy at Lalor to achieve 5,300 tonnes per day by the end of 2022 is underway. It includes advancing development for new mining fronts, additions to the mine equipment fleet, transition of workforce from the 777 mine upon closure and expansion of changehouse and office facilities. A planned Lalor maintenance period has been advanced to the second quarter of 2022 to allow for increased availability during the third quarter after 777 has closed and the additional workforce and equipment have transitioned to Lalor. The 777 equipment relocation strategy will commence in the second quarter ahead of expected time frames to advance the production ramp-up to 5,300 tonnes per day. The 777 mine is within 1 month of closure and the focus continues to be on safely mining out the remaining reserves by completing the necessary ground rehabilitation to access remnant and pillar stoping blocks. Challenging ground conditions continue to cause delays in the production sequence and resulted in higher dilution than planned. These challenges are expected to continue until the end of the mine life in June. Pre-closure activities are well underway in mined-out areas to decommission stationary equipment of value for redeployment at Lalor. The New Britannia mill averaged approximately 1,400 tonnes per day in the first quarter, slightly below the targeted 1,500 tonnes per day as a result of completing scheduled rod mill liner maintenance during the quarter. Since completing the mill maintenance, New Britannia has consistently achieved greater than 1,500 tonnes per day in April with the inclusion of doré, the gold and silver recoveries of the New Britannia have also improved significantly with metallurgical recoveries in March higher in relation to previous months. Additional initiatives are planned in the second quarter to further improve recoveries to be in line with targeted levels. Manitoba combined unit operating costs in the first quarter were within the guidance range, but 5% higher than the fourth quarter, primarily due to higher propane usage during the colder winter coupled with continued inflationary cost pressures for bulk commodities and fuel and lower tonnes processed. Full year combined unit costs are expected to remain within 2022 guidance ranges. With Manitoba's transition to a primary gold-producing business, we introduced gold cash cost guidance and disclosure in 2022. Gold cash costs in the first quarter were $416 per ounce in line with our annual guidance range. Late in March, we provided our annual mineral reserve and resource update. In Peru, mine planning gains and economic reevaluations resulted in additional mineral reserves at Constancia which would largely offset 2021 mining depletion. Current mineral reserve estimates at Constancia totaled 521 million tonnes at 0.31% copper with over 1.6 million tonnes of contained copper. As a result, Constancia’s expected mine life has been extended by 1 year to 2038. In addition, the Constancia Norte underground mineral resource estimates were added to Constancia’s Mineral Resources. A positive scoping study was completed in 2021, which resulted in an inferred mineral resource estimate of 6.5 million tonnes at 1.2% copper as shown on Slide 6. This resource estimate is in 2 high-grade skarn lenses located below the open pit in the Constancia Norte area. The study concluded these 2 lenses could be mined by underground methods starting in 2029 to supplement the open pit production. We intend to conduct infill drilling and an internal prefeasibility study in hopes of converting the underground mineral resources to mineral reserves for inclusion in the mine plan for the Constancia operations. As a result of exploration success in Manitoba, additional mineral reserves were identified at Lalor and the 1901 deposit in our 2022 reserve update. This extended the mine life of the Snow Lake operations by 1 year to 2038 and maintained the 17-year mine life. Resource to reserve conversion has more than offset 2021 mining depletion with a net gain for all metals, including an additional 218,000 ounces of gold contained in reserves after adjusting for mining depletion. This is a continuation of our successful year-over-year resource to reserve conversion in Snow Lake, where we have achieved a more than 350% increase in reserves identified to date, as shown on Slide 7. Inferred mineral resources at Lalor and 1901 increased by 1.1 million tonnes, bringing the total inferred mineral resources to 8.1 million tonnes. These inferred mineral resources have the potential to maintain the 5,300 tonnes per day production level in Snow Lake beyond 2028 and further extend the mine life. Slide 8 highlights the progress we've made on several of our development and exploration growth initiatives. The key focus for Hudbay is our Copper World project in Arizona. After the initial discovery in early 2021, we completed an aggressive drilling program, which led to an initial resource estimate in December 2021 that is larger and at a higher level of geological confidence than we expected at this stage. We also successfully expanded our private land package after the Copper World discovery and now hold over 4,500 acres to support an operation entirely on private land. The initial technical studies for Copper World have been completed, and the results are being incorporated into a PEA contemplating the development of the Copper World deposits in conjunction with an alternative plan for the Rosemont deposit to capitalize on regional synergies. The PEA is expected to incorporate a 2-phase mine plan with the first phase reflecting a standalone operation utilizing our private land for processing infrastructure and contemplating mining portions of Copper World and Rosemont located on patented mining claims. The first phase is designed as an economically viable stand-alone plan, requiring only state and local permits and is expected to reflect an approximate 15-year mine life. The second phase of the mine plan is expected to extend the mine life and incorporate an expansion onto federal lands to mine the entire Rosemont and Copper World deposits. The second phase would be subject to the federal permitting process. We expect the PEA to demonstrate positive economics for this low-cost, long-life copper project, and we look forward to publishing the results in a technical report in the second quarter of this year. In April, we commenced early site works at Copper World with initial grading and clearing activities taking place on our private land. We have also increased the number of drill rigs on site to 7 to conduct infill drilling and to support future feasibility studies. In addition to infill drilling, we continue to test regional exploration targets at Copper World. There remain several opportunities to further extend economic mineralization within the private land limits at Copper World and Rosemont, including to the north and south of Bolsa through drilling to bridge the gaps. In Peru, drilling continues at the Llaguen copper porphyry target with over 9,000 meters drilled to date. Based on the positive results from the initial drilling, the second phase of drilling has been initiated, aimed at defining an initial inferred mineral resource estimate in the third quarter of 2022. In the Snow Lake region, we had a busy winter exploration program actively conducting surface and underground drilling activities. The program primarily focused on the copper-gold rich feeder zone at the 1901 deposit, the drilling gap between 1901 and lens 17 at Lalor and a high-priority geophysical target located immediately north of Lalor. We also commenced a confirmatory drill program on the Flin Flon tailings facility earlier this year to support the evaluation of the tailings reprocessing opportunity. Slide 9 summarizes our upcoming catalysts. In Manitoba, we are advancing our Snow Lake gold strategy with plans underway to achieve 5,300 tonnes per day at Lalor by the end of the year as I touched on earlier. We are also implementing a recovery improvement program at the Stall mill this year to increase copper and gold recoveries as part of our Snow Lake gold strategy. We will continue regional drilling in the Snow Lake area to explore for base metal and gold upside, and we will continue to compile results from ongoing infill drilling programs at Lalor in 1901. In Peru, we will continue to move discussions forward with the communities to the north of Constancia, working towards mutually beneficial exploration agreements on the highly prospective regional brands. In the United States, we expect to be submitting state-level permit applications for Copper World this year, and we continue to await the outcome of the Rosemont appeal decision from the Ninth Circuit Court. Following the publication of a positive PEA, we expect to advance a Copper World pre-feasibility study in the second half of 2022. And on our Mason property, we intend to launch an exploration program to test skarn targets later this year. Concluding our presentation on Slide 10, Hudbay offers leading near-term free cash flow growth and significant copper resource optionality through our high-quality organic pipeline. We believe that copper has the best long-term supply and demand fundamentals in the industry as global copper mine supply will be unable to meet demand from global decarbonization initiatives. We have the highest near-term free cash flow growth and the highest leverage to copper among our mid-tier base metal peers, and we have successfully increased our copper equivalent resources per share by more than 180% over the past decade. For these reasons, we believe Hudbay is uniquely positioned to offer attractive copper production growth and long-term optionality for investors. And with that, we're happy to take your questions.

Our first question comes from Fahad Tariq of Credit Suisse.

Regarding the Manitoba railcar issues, I understand this isn't the first time Hudbay has faced such problems. Could you discuss potential ways to address this issue in the future? Is it likely to be a recurring problem each year? Any insights on this would be appreciated.

Sure. Thank you very much for the question. Look, yes, it is a seasonal phenomenon. But given the intensity of the phenomenon this year, we have looked at mitigating that through additional railcars in the coming year. So we do expect to be able to mitigate this going forward.

Okay. Switching gears to Copper World, in your news release you mentioned litigation related to water on private land. It seems like it may not apply, but I'm curious if this has altered your perspective on the PEA or the phased approach in any way.

No, no. And that's certainly a good question. Look, 2 groups of opponents have provided notices of their intent to see Hudbay arguing that Copper World contains waters of the United States, and Rosemont requires a 404 water permit to advance the project. The federal permitting agency, Army Corps of Engineers, in charge of water permits has never determined that there are waters of the United States on Hudbay's private land, and we performed our own analysis that shows there are none. So the work we're currently doing at site is grading and land clearing activities on our wholly owned private land and no federal permits are required for these activities. Does that answer your question?

Yes, it does. There's no change in the plan based on this. My last question is about the Rosemont ruling. We've been waiting for some time now, as it was supposed to be decided by the end of 2021, and we're now almost halfway through 2022. Can you provide any insights into what is holding up the decision?

That's an interesting question. And in fact, we have no insights whatsoever into what is holding up a judgment by the Ninth Circuit Court. We have, for a long time now, expected an outcome imminently, and we continue to expect that outcome imminently, but we have no insight into when that might be.

Okay. Can you remind us if a favorable ruling would change your approach in any way? Would you still prioritize Copper World along with Rosemont and then more Rosemont in Phase 2, or would that change with a favorable decision?

No, none of that would change in the event of a favorable decision. But maybe perhaps I could sort of just expand on that a little bit. Judge Soto's decision in 2019 resolved only 1 key issue from the 2 related lawsuits, namely the plaintiff's argument about the mining law. So a reversal by the Ninth Circuit Court would result in the case being remanded back to Judge Soto to resolve the remaining claims in those lawsuits. And although we don't feel that they would justify a full injunction on their merits, they do remain a source of potential other delays. And we would also need to still obtain a revised biological opinion from the Fish and Wildlife Service and a new record of decision from the forest service before restarting construction on Rosemont. So there would be a number of factors that you would have to reevaluate and review that will be required for the project to restart. So bearing all that in mind, there's quite a bit of work to be done potentially. And by far, the most sensible approach is to proceed as we're planned with Copper World.

Our next question comes from Orest Wowkodaw of Scotiabank.

I wanted to ask about Peru and Pampacancha specifically. It seemed like you were delayed accessing ore there in the first quarter. And given that you were already expecting sort of Q4 to be the highlight of the grade profile in terms of that feeding through the plant. Can you talk about if you see any risks to that high-grade ore slipping out of this year into perhaps early next year? Like can you catch up is what I'm trying to get at.

Thank you for that question. Look, as we indicated, we were impacted by the rainy season. That rainy season is over. And also the other impact was based on COVID absenteeism in the first quarter, which sort of reached a very, very high level in January and February, but that has now completely gone away. So things are progressing very, very well. Weather has improved. We expect to be back to full mining rates in the pit by June. And we do believe that we're on track to achieve the expected higher grades in the fourth quarter. Of course, there is always some risk, but we are pretty confident that we will be able to meet the mining requirements to do that. Andre, would you offer any additional comments to that?

No, no. I think you covered it well, Peter.

All right. Good.

Do you have the capability to increase equipment at Pampacancha to catch up, considering that most of the tonnage is still coming from the main pit?

Yes, we do in general. I mean also, remember that because of staffing issues related to COVID earlier in the year, we were not able to deploy all the equipment we had. But yes, we are able to deploy more equipment.

Our next question comes from Greg Barnes of TD Securities.

Peter, can you talk a little bit about the underground potential at Constancia Norte. You've done a PEA, what kind of CapEx are we looking at production rates? Any kind of sense we could get there? And would that extend the mine life of Constancia by another several years?

Yes, I would say thanks for that. I would say that clearly, as we've indicated that the underground would be subsequent to mining out the open pit portion of Constancia Norte. And we still have to complete a PFS. As you said, we've completed a PEA. Andre, would you like to comment any at all on the additional part of Greg's question?

Sure. Sure. So Constancia Norte, it's meant to be supplemental feed. The current design with ramp rate from surface so that it could potentially be mined concurrent with mining in the pit. It's probably cheaper to be mined with accesses and portals from the pit. And so there's a number of trade-off scenarios that need to be done on the underground portion at this point in time. And those trade-offs will determine what year. So as you can imagine, your question was around capital cost and the like. And so right now, the base case that we've done is ramp from surface, which is the most expensive option as opposed to very short drifts cutting across from the edge of the pit. But it is in the range, probably $50 million to $75 million-ish in that range for a deposit of that size. But we have a lot more study to do to optimize it at this point.

So this would be mined after the main pit is depleted or it could be another section of the main pit that is mined while entering the underground area.

There are options to mine either concurrently or sequentially. If you opt for concurrent mining, you'll need to start your portals from the surface to avoid interference with the pit expansion. Choosing the cheaper alternative requires waiting until the part of the pit nearest to Constancia Norte reaches its final stage before accessing the portals, ensuring continued access. Thus, there are two distinct options, and we must consider the overall mine life and determine the best time to incorporate it into our production plan.

Peter, I want to return to the topic of Copper World and the environmental groups trying to challenge you with the voting issue. Are there additional ways you think they could create problems for Copper World, or is it quite challenging since you are operating on private land? I'm trying to understand the potential obstacles you might encounter.

My sense is that the only roadblocks we might encounter are the ones we are currently facing. The groups opposing us are the same ones that tried to create obstacles with Rosemont. We believe this is essentially their only path forward, although we can't be sure of their thoughts. Importantly, Copper World is entirely situated on our private land, which is considered highly protected under U.S. and Arizona laws. Therefore, the only way they can challenge us is through the waters of the United States issue. As many of you know, the Army Corps of Engineers made a determination in 2021 that there are no waters of the United States in the project area, especially at Rosemont. So yes, we believe this is their only option, and we are not aware of any others.

Has the army corps looked at that on the Copper World ground specifically, Peter?

Sure, sure. So the Army Corps has looked at the Rosemont footprint per se. And that's where the jurisdictional determination was completed. The Army Corps has looked at our entire site for a number of years, probably for 4 to 6 years. So the Army Corps is very, very familiar with our footprint. The current rule for the waters of the U.S. right now is what they call the Rapanos decision. And the Army Corps has ruled on a number of jurisdictional determinations all around us. As close as Quail Creek to the Mission mine, even some of the tribes who are suing us. And so all around as the Corps has ruled that there are no jurisdictional waters. And so it gives us great confidence with knowing that not only with the studies that we've done, but the Army Corps, their silence is, in our view anyways is they're very confident there are no waters as well too. So they've known that we've been doing these activities now for close to 2 months. And so they're very knowledgeable about the work that we're doing and the washes that the opponents claim to be waters of the U.S., and they haven't done anything. So we're quite confident that they agree with us that there are no waters here under the current rule.

Okay. So you don't have a jurisdictional ruling from them on your specific ground not yet.

There is no requirement for a ruling regarding jurisdiction. It's simply a complimentary service that the Corps provides to inform you whether a permit is necessary. You just need to be aware that you are not violating any laws. We have conducted thorough surveys across our property, and we have also completed a jurisdictional determination on the other side and at some locations. However, even without that determination, there have been numerous assessments completed nearby on washes downstream from us that are not considered jurisdictional. Therefore, we are very confident that there are no near risks.

Our next question comes from Dalton Baretto of Canaccord.

Peter, at the risk of stating the obvious, you guys and us have been surprised by court rulings in Arizona before. But I'm just wondering, what do you guys like the odds are that these groups get the injunctions they're looking for?

I mean Dalton, thanks for the question. I have no idea what the odds are. I have no idea. It really is a decision that will be made by Judge Soto, and I don't know what the odds are. What I do know is that no matter what happens, we will proceed with the completion of the PEA and the feasibility work that we need to do in order to move the project forward regardless of any outcome of what Judge Soto may decide. But we are hopeful that Judge Soto will understand the simplicity of what's in front of him and make the right decision.

And so Judge Soto's ruling on this one as well, just to confirm?

Yes, that's correct.

Okay. How do the court rulings and lawsuits impact your view on copper from a broader social license perspective? Is the main opposition coming from environmental groups? What is the sentiment from the local population?

So I will let Andre answer that. In general, though, the opposition that we are receiving is from exactly the same environmental groups who opposed Rosemont. And so there's no surprise there. Beyond that, I think let me ask Andre to respond to the rest of that. I would just add that there is a lot of support locally, but Andre can elaborate on that.

Yes, I agree. The reality is that it only takes one person to file a lawsuit. As Peter mentioned, the group opposed to the project is relatively small compared to those who support it. However, what has changed is the upcoming Preliminary Economic Assessment, which addresses many of the concerns raised by the opponents. A key aspect is that it includes a well-thought-out environmental plan. We are excited to share this when it is released. A significant part of it involves producing finished copper in the U.S., and the unique characteristics of the deposit enable us to achieve that. We believe that many of the objections raised by our opponents will be resolved with this new information. We are looking forward to the release of the Preliminary Economic Assessment for everyone to review, as it will demonstrate that this is a world-class copper deposit that meets the needs of all stakeholders.

Okay. Great. I’d like to shift topics a bit. You've provided some insight into what Phase 1 entails, specifically a 15-year mine life. I know the Preliminary Economic Assessment is expected in a couple of weeks, but could you share more details about its scale? Will you be processing both sulfides and oxides, and what copper price are you assuming to assess its economic viability?

Dalton, I think it's a little bit early to sort of provide much of those answers because we haven't completed the PEA work yet. What I can say is that we do anticipate it will be a combination of sulfide and oxide processing; the scale right now is subject to completion of the technical and financial analysis. So I don't really know the scale of output, scale of throughput or anything like that right now. What I can really offer definitively, it will be a combination of oxide and sulfide processing.

Okay. And maybe I can squeeze one last one in. Llaguen in Peru, you're going to have an inferred resource in Q3 of this year. And I understand this project that's reasonably close to infrastructure and so on. Is there a chance that this thing could get accelerated maybe even ahead of Copper World just given some of the local opposition on Copper World?

No, I don't think so. We have completed the first phase of drilling and are still waiting for some final assays. We will launch the second campaign, but it is too early for that. Once we finish the drilling campaign, we will need to follow the normal permitting process in Peru. The only difference from other areas is that there is no indigenous population involved, so there is no requirement for Consulta Previa. Other than that, the situation is similar. Llaguen is still in the very early stages. Regarding your point about Copper World, we are confident that we will be able to proceed with Copper World according to the timeline we previously provided, which includes completing a preliminary feasibility study this year and a feasibility study next year, with potential sanctions by the end of next year.

Our next question is a follow-up from Orest Wowkodaw of Scotiabank.

I have a follow-up question regarding Copper World and your development plans for that project. Considering your balance sheet and cash flow profile, we're still waiting to see a significant change in your free cash flow generation. Will you be setting specific targets for net debt levels before you proceed with Copper World? How should we consider your balance sheet in the context of funding Copper World if you intend to make a decision by the end of next year?

Yes, it's Steve here. I believe it's a bit early to discuss our financing strategies until we complete the PFS and evaluate our options. The results will influence our financing approach and any potential partnership pursuits. There are several stages we need to navigate before determining how we will finance this. Regarding your question about the inflection point, we've mentioned in our press release that timing for concentrate sales has been affected by logistics issues, primarily in our Manitoba operations. I am not in favor of setting specific debt targets; the structure is important. All these factors will contribute to how we approach this situation. We are confident we will see that inflection point regarding positive cash flow generation. Our working capital shows that we have excess inventory ready for sale, which will help generate cash. While we anticipate a back-end loaded year for various reasons, we expect to generate significant free cash flow this year, provided prices remain stable. Although this is a lengthy way to say it, please stay tuned. We will consider all our capital needs, including the debt maturities in 2026 and 2029, before moving forward with any decisions.

I understand you haven't released the study on Copper World yet. Should we expect a project CapEx that is somewhat similar to Rosemont in terms of potential CapEx, or could this project be much smaller?

No, Orest, I think you should think in that region somewhere; it's a little bit premature to say so, but I think you should be assuming something in that region.

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

Thank you, operator, and thank you, everyone, for participating today. If you have any further questions, feel free to reach out to our Investor Relations team. You may disconnect your lines at this time.