Hudbay Minerals Inc. Q4 FY2022 Earnings Call

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hudbay Minerals Inc. Fourth Quarter 2022 Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct the question-and-answer session. I would like to remind everyone that this conference call is being recorded today, February 24, 2023, at 8:30 A.M. Eastern Time. I will 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 Fourth 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 Eugene Lee, our Senior Vice President and Chief Financial Officer; and André Lauzon, our Senior Vice President and Chief Operating Officer. Please note that comments made on today's call may contain forward-looking information, and this information, by its nature, is subject to risks and 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. As a reminder, all amounts discussed on today's call are in US dollars unless otherwise noted. And now, I'll pass the call over to Peter Kukielski.

Thanks very much, Candace. Good morning, everyone, and thank you for joining us. 2022 was a year of dedication, discipline, and delivery for Hudbay as we completed our first full year of New Britannia and Pampacancha operations. We transitioned our Manitoba operation with a new focus on Snow Lake managed through political uncertainty and logistical constraints in Peru and committed to further improving our already low carbon footprint. We faced a period of higher input prices and volatile copper prices, but we took measures to reduce our discretionary spending as part of our commitment to disciplined capital allocation and generating free cash flows. More than ever, we are focused on maintaining a strong safety culture in our workplace and continued alignment with our local communities. In this presentation today, I will go into more detail about our achievements and challenges in 2022, touch on the operating and financial performance of the business and provide an overview of our production and cost outlook as we execute on our key strategic objectives for 2023. Starting on slide 3, we're proud to have achieved our 2022 consolidated production guidance for all metals and consolidated cash costs and sustaining cash cost guidance in a difficult environment. This was due to the strong ramp-up of the New Britannia mill, which successfully increased annual Snow Lake gold production by 46% in its first full year of operations. Similarly, in Peru, a full year of production at Pampacancha helped to bring copper and gold production each by approximately 15% year-over-year. In Manitoba, 2022 has been a transition year as we closed our 777 mine and Flin Flon metallurgical complex after decades of steady operations. The Manitoba team continued to focus on integrating the Flin Flon employees and equipment into the Snow Lake operations in order to significantly reduce our reliance on higher-cost contractors. We also completed confirmatory exploration drilling at our Flin Flon Tailings facility in 2022, which indicated higher grades than reported from our historical mill records. This facility holds in excess of 100 million tonnes of tailings that have been deposited over the span of 90 years. We plan to complete metallurgical test work on the Flin Flon Tails to assess the metallurgical recoveries. Furthermore, our Anderson Tailings facility in Snow Lake contains significant amounts of gold deposited over many decades. Given our enhanced gold processing capacity in Snow Lake, we are in the early stages of evaluating a similar opportunity to reprocess the Anderson Tailings as well. Elsewhere in Snow Lake, the Lalor expansion beyond 4,650 tonnes per day is ongoing, and the store recovery improvement program is well advanced and on track for completion in early 2023. We also repaid 50% of the gold prepay facility that helped fund our new Britannia mill refurbishment. In Peru, we announced the signing of an exploration agreement with Uchucarcco community in August, providing access to the Maria Reyna and Caballito satellite properties located within trucking distance of Constancia, and I'll touch on these opportunities shortly. In early 2022, we completed an internal positive scoping study at Constantia Norte, highlighting an inferred mineral resource estimate of 6.5 million tonnes at 1.2% copper. The study concluded that the two high-grade skarn lenses could be mined by underground methods starting in 2029 to supplement the open pit production. Later in the year, our team also completed an initial mineral resource estimate for Llaguen and identified a higher-grade core. Llaguen is a 100% owned copper-molybdenum porphyry deposit located in the La Libertad region in Northwestern Peru near the city of Trujillo and within close proximity to existing infrastructure, water, and power supply. More importantly, in Peru, we're extremely proud of the team's efforts in maintaining strong operations throughout the year despite operating in a challenging environment with heightened inflation, recent vertical changes, and logistical challenges. The team has been able to successfully navigate this environment, while maintaining steady operations and achieving our copper production guidance in 2022. In the United States, we demonstrated the value of our copper world project with the release of the preliminary economic assessment in June. The PEA outlined a two-phase mine plan incorporating the newly discovered deposits along the East deposit, formerly known as Rosemont. Phase 1 reflects a 16-year stand-alone operation on private land with an average annual copper production of approximately 86,000 tonnes at attractive cash costs of $1.15 per pound. Phase 1 generates robust economics with an after-tax net present value of $741 million at a 10% discount rate and an internal rate of return of 17% using a copper price of $3.50. Phase 2 at Copper World expands mining activities onto federal land and extends the mine life to 44 years with average annual copper production of approximately 100,000 tonnes. The projected after-tax NPV of the second phase at the time of sanction would be $2.8 billion, which demonstrates the significant upside opportunity that the second phase brings to the project. After the completion of our PEA for Copper World, we initiated the state-level permitting process and received the first of the state permits, the mined land reclamation plan in 2022. We completed the technical work to support the pre-feasibility study for Copper World, which I'll touch on in more detail later in the presentation. And in late 2022, as part of our disciplined financial planning, we announced three specific prerequisites, including specific financial leverage targets that would need to be achieved prior to making an investment decision in Copper world. Finally, we have been rationalizing our non-core asset portfolio and divested our 100% interest in the Lordsburg property in New Mexico, which was acquired through the Mason acquisition in 2018. We completed the sale of our equity interest in Fireweed metals, which we received in 2018 in exchange for the sale of our Tom and Jason properties in the Yukon. Turning to Slide 4. We started to see the benefits from our recent brownfield investments through increased production and cash flows in our 2022 results. Fourth quarter consolidated copper production increased by 20% from the third quarter, primarily due to higher copper grades in Peru; consolidated gold production was slightly higher than the third quarter due to higher gold grades in Peru, which were partially offset by lower Lalor gold grades in Manitoba. As I mentioned, we achieved full year consolidated production guidance for all metals. Annual copper and gold production was on the lower end of the guidance range, primarily due to lower than planned grades in the fourth quarter in Peru as we implemented short-term mine plan changes to mitigate the risks associated with logistical and supply chain disruptions. Consolidated copper cash costs increased from the third quarter levels as a result of lower precious metal sales volumes and continued inflationary cost pressures, partially offset by higher copper production. Sustaining cash costs also increased from the third quarter due to the same reasons affecting cash costs and higher capitalized exploration, slightly offset by lower sustaining capital expenditures. Operating cash flow before changes in non-cash working capital was $109 million during the fourth quarter, reflecting an increase of $27 million compared to the third quarter. Fourth quarter adjusted EBITDA was $125 million compared to $99 million in the third quarter. Results were higher than the prior quarter due to higher copper sales volumes and higher copper, gold, and molybdenum prices but partially offset by the temporary buildup of unsold inventory in Peru. In light of the environment in the second half of 2022, with increasing input prices and declining copper prices, we delivered $30 million in discretionary cost reductions across the business through lower growth capital and exploration expenditures. We exited the year with $226 million in cash and equivalents as well as undrawn availability of nearly $350 million under our revolving credit facilities. On Slide 5, we summarize our Peru operating results. During the quarter, we produced 27,000 tonnes of copper and 21,000 ounces of gold at 21% and 64% increase, respectively, over the third quarter. These production increases were due to higher grades and recoveries, and the fourth quarter was a record quarter for gold production in Peru. Full year copper production increased by 15% year-over-year to 89,000 tonnes, achieving the annual guidance. Full year gold production increased by 16% year-over-year to over 58,000 ounces but fell short of 2022 guidance. This was due to a short-term change in the mine plan where we prioritized the processing of lower grade stockpiles and shorter haulage distances of ore from the Constancia pit. This allowed us to reduce our fuel consumption and keep the mill at steady production during a period of nationwide social unrest and road blockades following the change in Peru's political leadership in early December. Despite these changes, total ore mined during the fourth quarter increased by 7% and total ore mined was slightly higher than the pre-quarter. Unit operating costs in the fourth quarter were 4% higher than the third quarter primarily due to higher mining costs and continued inflationary pressures. Full year unit costs were 19% higher than 2021 due to a higher strip ratio, higher mining costs, and inflationary pressures on fuel, consumables, and energy costs, partially offset by higher ore milled. Peru's cash cost in the fourth quarter declined by 20% to $1.34 per pound compared to the third quarter due to higher copper production and higher by-product credits resulting from higher grades. Sustaining cash costs decreased by 15% quarter-over-quarter, primarily due to the same factors affecting cash costs and lower sustaining capital expenditures, partially offset by higher capitalized exploration. While we were successful in completing two port shipments in December, inventory of approximately 25,000 metric tonnes of copper concentrate was unsold at the end of the quarter due to nationwide blockades. Given that, we have been able to continue to operate our concentrate inventories at site, which reached a peak of approximately 47,000 tonnes in mid-February. We were able to complete three concentrate port shipments in January and regular transportation of concentrate has resumed since mid-February. We expect to return to normal concentrate inventory levels in the next several months. As an additional prudent measure intended to ensure positive cash flow generation and continued financial discipline, we expect to extend our existing quotational period hedging program to cover approximately 13,000 tonnes of contained copper in the unsold concentrate inventory to lock in current copper prices. Moving to the next slide on Manitoba. Gold, zinc, and silver production declined during the fourth quarter compared to last quarter, primarily as a result of lower grades at Lalor in line with the mine plan. Copper production was slightly higher than last quarter. Full year 2022 production in Manitoba was impacted by the planned closure of 777 in June, resulting in a decrease in copper, zinc, and silver production while annual gold production increased by 13% as New Britannia ramped up to full production. Full year production of all metals in Manitoba achieved the 2022 annual guidance ranges. All mine Lalor increased by 6% in the fourth quarter compared to the third quarter mainly due to the higher production initiatives and the integration of the Flin Flon employees and equipment, partially offset by a planned maintenance program at the mine. We continue to advance several key initiatives to support higher production levels at Lalor, including building longhole inventory, improving stope fragmentation, optimizing the development drift size, and focusing on shaft availability improvements to enable more ore to be hoisted to surface while reducing inefficient trucking of ore via the ramp. The combined Snow Lake Mills processed 5% less ore in the fourth quarter due to the employee transition and planned maintenance. The New Britannia Mill continued to achieve consistent production, averaging 1,530 tonnes per day in the fourth quarter. Combined unit operating costs in the fourth quarter were relatively in line with the third quarter. Full year combined unit operating costs increased by 27% compared to 2021, reflecting the standalone higher cost structure of Snow Lake after the closure of the 777 mine and Flin Flon operations in mid-2022. Manitoba's gold cash costs were $922 per ounce in the fourth quarter, higher than the third quarter, primarily due to lower byproduct credits and lower gold production. However, full year 2022 cash costs were $297 per ounce, which was impressively below the low end of the annual guidance range. Slide seven illustrates the growth in copper and gold production on the back of the $250 million in brownfields investments we delivered in early 2022. 2023 is expected to be another year of meaningful growth, with consolidated copper production expected to increase by 10% and consolidated gold production is expected to increase by 30% compared to 2022. Consolidated copper and gold production is expected to further grow in 2024 as a result of continued higher grades at Pampacancha and several gold production enhancements in Snow Lake. This is expected to lead to increasing EBITDA and cash flows, and we believe our high-quality pipeline of attractive development and exploration opportunities will further add to this growth in the medium to long term. Slide eight highlights the details behind the 2023 consolidated production growth. In Peru, the mine plan adjustments we saw in the fourth quarter continued into early 2023 to ensure steady operation of the plants during the regional logistical challenges. This is expected to result in more ore being mined from Constancia and less from the Pampacancha pit in the early part of the year. Despite these changes and a period of higher stripping at Pampacancha, 2023 production is expected to be 103,500 tonnes of copper and 95,500 ounces of gold, representing year-over-year increases of 16% and 64%, respectively. In Manitoba, 2023 gold production is expected to increase by 18% to 190,000 ounces due to higher gold grades and a 10% increase in ore throughput at the Lalor mine. The 2023 mine plan at Lalor reflects higher production from the gold and copper gold zones, as those zones are expected to be prioritized over the base metal zones. It also reflects a 10% increase in throughput at the New Britannia mill, as the mill has been consistently achieving levels above nameplate capacity. These mine plan enhancements result in 2023 gold production levels being consistent with the most recent mine plan for Snow Lake, but without the full ramp-up to 5,300 tonnes per day, as we focus on maximizing the value per tonne of ore at Lalor. Year-over-year, zinc production is expected to decline by 42%, primarily due to the recent closure of the 777 mine. We expect to release 2024 and 2025 guidance next month, with our annual mineral reserve and resource update. We expect our 2024 production guidance to be similar to the previously issued guidance, reflecting a further increase in copper production in Peru and gold production in Manitoba. More importantly, we now expect mining activities at the Pampacancha deposit to continue into the first half of 2025, which is expected to increase copper and gold production in 2025 beyond the levels shown in the most recent technical report. Slide nine summarizes our cost guidance for 2023. Total expenditures are expected to decline by approximately $65 million compared to last year due to lower discretionary growth capital and exploration spending in 2023. Peru's sustaining capital expenditures are expected to increase year-over-year, but remain in line with the most recent technical report. The higher level of sustaining capital is due to an increase in heavy civil works for the completion of a tailings dam raise in 2023. Manitoba's sustaining CapEx is expected to be lowered in 2022 due to lower equipment spending at Lalor and in the mills after the Snow Lake transition and ramp-up period in 2022. Total growth capital of $55 million in 2023 includes $10 million for mill recovery improvement initiatives in Peru and $15 million for the completion of the store mill recovery improvement project in Manitoba. We have also allocated $30 million to growth spending in Arizona as we advance permitting economic studies and site works at Copper World in 2023. Total exploration expenditures of $30 million in 2023 are 61% lower than 2022 levels, due to our focus on discretionary spending reductions. Our planned exploration activities this year are focused on areas with high potential for new discovery and mineral reserve and resource expansion. These initiatives include permitting and drill preparation for the Maria Reyna and Caballito properties near Constantia, a limited drill program at Pampacancha to evaluate the potential to add an incremental mining phase at depth, and the winter drill program in Snow Lake focused on testing the deep extensions at Lalor. Copper cash costs in Peru are expected to decline by 26% in 2023 versus 2022, primarily due to higher gold by-product credits and higher copper production. Gold cash costs in Manitoba are expected to increase in 2023 compared to last year as a result of the transition to our primary gold operation with lower byproduct credits after the closure of the 777 mine in June 2022. Consolidated copper cash costs in 2023 are expected to decline by 30% compared to 2022 levels due to the increase in copper production and higher gold byproduct credits from the increase in annual gold production. Consolidated sustaining cash costs in 2023 are expected to be 18% lower than 2022 levels due to the same factors affecting consolidated cash costs, partially offset by slightly higher sustaining capital expenditures. Part of the discretionary spending reductions relate to deferred spending at our Copper World project. The reduced year-over-year spending at Arizona reflects our focus on project derisking activities including the completion of a prefeasibility study, state-level permitting, and plans for bulk sampling program in 2023, as shown on slide 10. The majority of the technical work and expenditures related to the prefeasibility study for Phase 1 of Copper World are now complete. The prefeasibility study is expected to support the conversion of the mineral resources to reserves and optimize the layout and sequencing of the processing facilities. Prefeasibility level engineering the main processing facility was completed by year-end, together with geotechnical and hydrogeological site investigation activities. Metallurgical test work continued into 2023, and the results are being analyzed as part of concentrate reaching trade-off evaluations. The prefeasibility study results are expected to be released by the end of the second quarter of 2023. The Copper World requires only state-level permits for Phase 1. Late last year we submitted applications for an Aquifer Protection Permit and an air quality permit to the Arizona Department of Environmental Quality known as the ADEQ. We have been working closely with the ADEQ and we expect to receive these two remaining permits in 2023. The other key state permit, the Mined Land Reclamation Plan, was received in 2022. In January 2023, we received an approved right of way from the state land department that will allow for infrastructure such as roads, pipelines, and power lines to easily connect between the properties in our private land package. Upon receipt of the state permits, we expect to conduct a bulk sampling program to continue to de-risk the project by testing grade continuity, variable cut-off effectiveness, and metallurgical strategies. Additionally, we intend to initiate a minority joint venture partner process, which will allow the potential JV partner to participate in and help fund the definitive feasibility study activities in 2024. The opportunity to sanction Copper World is not expected until 2025 based on current estimated timelines and reflects a conservative approach to spending at Copper World over the next two years. The 3P plan for sanctioning Copper World that I mentioned earlier is laid out on this slide. This plan ensures Hudbay will be in the best position to move the project forward, with the lowest cost of capital and the highest risk-adjusted return on investment. Turning to slide 11, our recently executed Surface Rights Agreement with the community over Chicago allows for exploration of the Maria Reyna and Caballito properties. Hudbay owns the mineral rights to these properties that are located within trucking distance of the Constancia processing facility, and we completed geophysical surveys in the area that indicate large-scale potential at these properties. Shortly after the community exploration agreement was completed, we commenced baseline environmental and archeological activities to advance the permitting process for property drilling in the future. A ground geophysical survey commenced in the fourth quarter and will continue once the Peruvian social situation improves. Our geological team commenced surface investigation activities, and field evidence confirms that both Caballito and Maria Reyna host sulfide and oxide-rich copper mineralization in skarns, hydrothermal breccias, and large porphyry intrusive bodies. Similar to Pampacancha, Caballito was located about 5 kilometers from Constancia and includes an old open-pit mine that was operated by Mitsui until the early 1990s. The US geological survey from 1990 estimated a total resource of 91 million tonnes at 2.3% copper for the open-pit mine. Maria Reyna is approximately 10 kilometers from Constancia and artisanal mining activity is present in the high-grade areas. These small-scale miners report an average grade of between 2% and 6% copper in the ore. In Snow Lake, we commenced a winter drill program in January 2023, with four drill rigs testing the down-dip gold and copper extensions of the Lalor deposit. This is the first time we have completed step-out drilling in the deeper zones at Lalor since the initial discovery of the gold and copper-gold zones in 2009 and 2010. One additional drill rig is actively testing a target to the north of Lalor, which is another highly prospective location next to the main Lalor ore body that is thought to be offset by post-mineralization faulting. The first phase of this program includes a total of 12 holes and over 20,000 meters of drilling followed by a combination of surface and borehole electromagnetic surveys. Based on the results from the first phase program, a follow-up drill program is planned for the winter of 2024. We are committed to operating in a manner that demonstrates our focus on the environment, and we are proud of our already low carbon footprint. With over 50% of our total energy consumption being from renewable resources, including nearly 100% renewable energy in Manitoba, we are leading emissions rankings among the peers as seen on slide 12. We also aligned with the highest industry standards to ensure that we are on par or ahead of industry expectations. We recognize we have a role in mitigating climate change, and in December, we were pleased to announce our commitment to achieve net-zero greenhouse gas emissions by 2050 and the adoption of an interim target of a 50% reduction in Scope 1 and Scope 2 emissions by 2030. We plan to be reporting on material Scope 3 emissions in the near term and continue to be transparent with greenhouse gas performance data disclosure. Through our emissions reduction roadmap, we have identified multiple opportunities to achieve further reductions in emissions, including grid decarbonization in Peru, fleet and heating electrification, and fuel switching in mobile equipment. We have been reporting greenhouse gas emissions data and performance to the CDP climate questionnaire for more than 10 years. Our annual sustainability report maps our CDP responses to the Task Force on Climate-related Financial Disclosures recommendations. We are also aligned with the Mining Association of Canada's Towards Sustainable Mining or TSM protocols at all of our operations with the goal to maintain a strong score of an A or higher for all protocols. We truly believe that our ESG principles are the foundation of our business and are critical for our long-term success. Slide 13 summarizes our near-term cash flow growth in our high-quality organic copper pipeline. We believe that copper has the best long-term supply-demand fundamentals in the sector as global copper mine supply will be unable to meet demand from global decarbonization initiatives. We have the highest near-term copper production growth and the highest leverage to copper among our mid-tier base metals peers, and we have successfully increased our copper equivalent resources per share by more than three times 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. To summarize, we acted to generate significant near-term cash flows. We also have a world-class organic growth pipeline offering medium to long-term copper production optionality. As you see through this presentation, we have several exciting brownfield and greenfield growth opportunities that we intend to advance with our 2023 key strategic objectives. Our lower discretionary spending in 2023, together with lower year-over-year cash costs, will allow us to generate positive cash flow and advance our copper development pipeline with minimal capital. We will continue to de-risk Copper World with several project catalysts expected in 2023 as we prudently advance our 3D plan for Copper World sanctioning. In Snow Lake, it will be a year filled with several milestones as we execute the expansion and ramp-up of Lalor beyond 4,650 tonnes per day and complete the Stall mill recovery improvement program early in 2023. And we'll conclude our drilling program to test the dip extensions at Lalor with the potential to expand gold mineral reserves and resources. In Peru, we will continue to progress Constantia's leading efficiency metrics by applying smart technologies to continuously improve operating performance, including sensor-based ore sorting and milling flow sheet enhancements. We also aim to further advance the Maria Reyna and Caballito satellite properties through exploration permitting. We will advance our climate change commitments by assessing opportunities that are aligned with global decarbonization goals. And finally, we will remain vigilant in evaluating growth opportunities that meet our stringent strategic criteria that will reflect sustainable value for the company and our stakeholders. And with that, we are pleased to take your questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from Fahad Tariq of Credit Suisse. Please go ahead.

Hi, good morning. Thanks for taking my question. Peter, maybe just on the Peru protest situation. Can you talk a little bit more about, like, has the transportation of concentrate? Is it just completely normal now? And what about supplies getting to the mine? It sounds like it's getting better? I'm just trying to understand, is it at normal levels now? Thanks.

Good morning, and thanks very much for the question, Fahad. I think, look, the political situation in Peru is an interesting one, but it is one that our team has been able to respond to in a manner that is entirely consistent with my expectations of their performance so far. So to your point, yeah, concentrate transportation has certainly opened up in the last week or two, and we expect that it will continue along those lines. We think that the situation is starting to normalize, but it's a little bit difficult to predict exactly how it will go. What I can say, though, is that we are closer to our communities than ever. And so we will experience ups and downs in the weeks and months ahead of us. But we have extremely strong support from our communities who have actually come out several times in order to moderate the activities of protesters who come in from the outside. So that said, that's a long answer to your question, but I do expect we'll have ups and downs, but we will continue to be able to reduce the inventory that we have at site and progress shipments out.

Okay. That's helpful. And then maybe just as a follow-up. So if you see over the next several weeks it's kind of very back to normal in terms of getting supplies to the mine. Is it possible to re-check the mine plan to go back to what it was previously, i.e., more Pampacancha ore?

It will take time. I'm sorry that I didn't really address your question about getting supplied to the mines, but we have been able to consistently get supplies for the mine. The biggest issue has been fuel typically. And so we've adjusted the mine plan accordingly to be able to address any of the fuel bottlenecks. But to get back to the mine plan as planned in the short term will be a little difficult, but perhaps I can ask André to elaborate on that a little bit?

We have seen improvements in the amount of fuel and other consumables arriving at the site, which is a positive trend. In the first quarter, we were in a stripping phase at Pampacancha according to our previous mine plan. From late December through February, we prioritized fuel to keep the mill operational, and Pampacancha is considerably further than the Constancia mill. We just resumed activities at Pampacancha this past week as our fuel levels increased. However, it will take a few mining phases and some stripping before we return to the higher grades, likely in the next quarter. There is no quick solution to revert to the original plan, but we expect to see improved grades come Q2.

And you just shift forward the plan that you would otherwise expect us to be operating against?

Exactly, yeah.

That’s helpful. Thank you.

Our next question comes from Orest Wowkodaw with Scotiabank. Please go ahead.

Hi. Good morning. More questions are around the same lines, in terms of Peru and Constantia. Can you give us an idea on your updated guidance for 2023, what does that assume with respect to the amount of Pampacancha ore that's going into the plant?

I think, as André said, - I'm sorry morning, Orest, and thanks for the question. As André said, the next quarter is going to be focused on, we're doing a lot of pre-stripping there, and we'll be preferentially mining at Constantia. So I would say that we would push out in March; we would start to see the higher grades coming from Pampacancha again.

And in terms of a volume number?

I'm sorry, could you repeat that, Orest?

Sure. Yeah. In terms of a volume number, like, should we be anticipating that the tons mined from Pampacancha is sort of similar to 2022, or could it even be less than 2022?

In terms of total metal, the year is back loaded, with about 60% of the metal expected to come from the end of the year. We won't see much Pampacancha ore for about three months due to current circumstances. We're just starting to resume operations, and while I don't have an exact figure, I can say that it is a reduction from what we forecasted last year, but it's likely comparable to last year's performance at this stage.

Hi, Orest, it's Eugene here. I want to provide some clarity regarding the guidance range. The midpoint of our guidance suggests that we expect to return to Pampacancha in March. Considering the range of possibilities from that point, that would likely be the best way to model the situation appropriately.

Okay. Thank you very much.

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

Yes. Thank you. Perhaps an easier way to think about it is you've shifted 15,000 tonnes of copper production from 2023 to 2025. Is that effectively what's happened?

I would say, in general, that's correct, Greg.

Okay. Around Snow Lake and Lalor and the 5,300 tonnes a day, I'm trying to understand quite what the goal there is now? I know you're shifting towards more higher grade ore and putting more through New Britannia, but are you still planning to ramp up to 5,300 tonnes a day or not?

Yeah. I'll let André provide a little bit more detail on that. But in essence, the 5,300 tonnes per day that we envisaged previously included utilizing the ramp to get a bunch of the ore up. We find that the costs associated with utilizing the ramp actually squeeze the margins very significantly and are a non-efficient use of our time and money. And so it is more cost-effective to increase production through the shaft. The specific gravity of the gold ore is lower. So it means that you have to ship more volume up the shaft. Our efforts at the moment are really focused on enhancing production through the shaft, but we will still move towards 5,300 tonnes per day. André, do you care to elaborate on that?

Sure. We are committed to increasing production, and the plan for next year is to achieve about an 8% increase compared to last year's output. The gold ores are somewhat lighter, which affects our current plan to maintain around 47%, representing an 8% jump in volume movement. As we look ahead to next year, it's impractical to stop the ramp. In January, we paused 18,000 tonnes, and the round trip takes two hours, with our scoops waiting for the trucks to return. We are focusing on transporting more up the shaft. There is currently a short-term bottleneck that we are addressing. Although we don't face pressure underground at Lalor, we managed our month through grizzlies. The gold ore is tougher, and we're improving the grizzly design for better flow. To visualize, we're shipping 18,000 tonnes uphill with two-hour trips, but we could easily double production to 36,000 tonnes without expanding our fleet on the lake, which aligns with our goal of reaching 5,300 tonnes per day. We're already hitting that target on multiple days this month, and addressing some minor issues will help us achieve that goal.

So how does this change, or does it change the production profile from Lalor? I'm still not entirely clear.

The production profile will continue to increase throughout this year, aiming for approximately 4,700 tonnes per day by the year's end. We are also focusing on cash flow by improving our dilution and reducing waste sent to the surface. While this may impact production, it ultimately enhances cash flow. Our goal is to achieve better grades from the mine while minimizing waste, aligning with our greenhouse objectives and increasing throughput. We have the necessary personnel in place to boost production, and we are currently addressing several process improvements to enhance our development and ensure we have the right drill inventory. We are increasing our inventory to about 200,000 tonnes of blastable material, which helps alleviate bottlenecks and improves truck productivity. As we resolve these issues, we will have a clearer idea of our final production state, whether it will be in the low 50s or 54 tonnes per day. We are actively working through these details now.

Okay. Okay. Thank you.

Our next question comes from Stefan Ioannou of Cormark Securities. Please go ahead.

Thank you for the update. It's great to see the exploration beginning at Caballito and Maria Reyna. Could you remind us about the process of getting drills set up there? I understand there's some permitting involved for exploration. Should we expect this to happen in 2024, or is it likely to take longer?

Hi, Stefan, thanks for that. Yes, I certainly think you can expect it in 2024. Currently, we have completed the necessary surface and environmental baseline work required for permit applications. We have submitted these applications and are in the review process with the government and the Constancia premier process. While it does take time, we anticipate receiving those permits in roughly a year. Therefore, we expect to have them around this time next year. In the meantime, additional surface investigations are ongoing.

Okay. Great. I'm assuming there's still a fair bit of just sort of drill target definition to be done to really fine-tune that anyways?

We have already conducted a significant amount of work. Our main focus has been deciding whether to implement a larger drilling program across the entire property or concentrate on a smaller area that could serve as a high-grade alternative or supplement to Pampacancha in the future. These are the considerations we are currently evaluating. However, in terms of definition, we are quite advanced.

Okay. Great. Great. And then maybe just a very question, I'm not sure how much you can actually say, but just in terms of one of the last slides you continue to evaluate and execute on growth opportunities. Looking outside the current portfolio, are you seeing a lot of opportunities that may compete with some of the internal organic growth that you're doing right now, or is the focus really on sort of what you laid out in the presentation with the existing projects?

I believe we have a highly skilled team capable of efficient operations and world-class project development. We are confident in our ability to create value from both operating and development stage assets. We have a Tier 1 development portfolio and aim to find a cash-flowing operating asset to diversify our business. However, such opportunities are very rare, and we remain vigilant in our search for them as we see what unfolds.

Yeah, yeah. Okay. Great. Well, thanks very much, guys.

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

Thank you, operator. Good morning, Peter, André, and Eugene, nice to hear from you all. On the Pampacancha mine plan change, could it possibly be taken as a positive in the sense that it smooths out the copper production profile longer term? And then there's also the Constancia underground under consideration. What can you tell us about potential 2026 copper production from Peru? Could it now be similar in magnitude to 2025 as opposed to the drop-off in production that was contemplated in the last life of mine study?

Good morning, Lawson. Thank you for the question. Yes, I think you can view that as a positive. Once Pampacancha is depleted, we will transition to Constancia Norte. This will help maintain grades and at least keep production steady for a while. However, we do expect a decline over time. By 2026, you can expect to see it continue at a rate of about 100,000 tonnes per year.

We are also focusing on several process improvement projects. In our capital plans, we have decided to defer the pebble pressure, and one of these projects involves a trial we are planning for early this quarter, which aims to reject pebbles from the mills, typically containing around 0.15 copper. We are testing a variable cutoff approach to increase mine throughput, reject the pebbles, and achieve a higher grade through the plant. This trial is upcoming and represents an opportunity for us to maintain production at approximately 100,000 tonnes per year of copper after copper culture. Additionally, we have made progress with ShovelSense, which helps in selectively removing waste from the ore at the face. The results so far have been promising, although we are still in the testing phase. We have set aside about 50,000 to 60,000 tonnes of material to run through the mill to verify that the sorted grades align with expectations. The combination of these two projects positions us well to deliver better grades to the mill than what the current life of mine plan indicates.

Okay. Thanks for that both of you. And then with the cash cost guidance. Would you be able to help us by providing what the cost per tonne assumptions are underlying those for both Peru and Manitoba, as you've provided in the past?

Hi, Lawson, it's Eugene here. Yes, we've evolved in our cost guidance. And in prior years, you would notice that we provided operating unit cost guidance. And then last year, we added cash cost guidance in an effort to streamline the multitude of metrics that we guide to, and we've reverted to kind of one metric per mine in terms of cost guidance. So cash cost per pound in Peru and cash cost per ounce of gold in Manitoba. The unit cost we will continue to report in our financials on a quarterly basis. And they are roughly in line for 2023 as projected from where we're trending. So approximately $12 a tonne in Peru, and approximately CAD200 per tonne in Manitoba would be kind of a rough guide to where you get to. So similar levels, but we're going to kind of stop in providing specific guidance for that while continuing to report.

Okay. Well, that right there is very helpful. Oh, sorry, go ahead.

We'll note that the cash cost guidance for 2023 is lower than that in 2022. So I think the story would be that we're producing more copper in Peru, more gold in Manitoba and at a lower cash cost, and that's a testament to the team's focus on cost efficiencies and despite the inflationary environment.

Yes. That's fantastic. Thanks very much, Eugene, and thank you, Peter and André.

Welcome.

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. Thank you, and have a great day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.