Earnings Call Transcript - HBM Q2 2021

Operator, Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hudbay Minerals, Inc. Second Quarter 2021 Results Conference Call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. I would like to remind everyone that this conference call is being recorded today, August 10, 2021, at 8:30 A.M. Eastern Time. I would now turn the conference over to Candace Brûlé, Director of Investor Relations. Please go ahead.

Candace Brûlé, Director of Investor Relations

Thank you, Operator. Good morning and welcome to Hudbay's 2021 second 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; Cashel Meagher, our Senior Vice President and Chief Operating Officer; and Eugene Lei, 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. 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?

Peter Kukielski, President and CEO

Thank you, Candace, and good morning, everyone. Thanks for joining us. As we reach the halfway point of the year and begin to see some hope after 18 months of challenges, we're still experiencing impacts related to COVID in our business. We will stay alert and pivot as necessary, maintaining our focus on safe and efficient operations. This quarter marks the start of our shift toward increased production and cash flows as we finalize the investment initiatives at our growth projects. Following the successful ramp-up of the high-grade copper-gold Pampacancha deposit, our Peru operations reported record gold production in the second quarter and are set for higher copper and gold outputs in 2022. The New Britannia gold mill is ahead of schedule, with the first gold pour anticipated this month, and the copper flotation circuit is on track for commissioning and ramp-up by year-end. We expect to see enhanced cash flows from these high-return investments starting in the second half of 2021. In today's presentation, I will cover our second quarter results, detail the progress on our growth and ESG initiatives, and summarize the upcoming catalysts. In the second quarter, consolidated copper production was 23,500 tonnes, down 4% from the first quarter of 2021, primarily due to lower copper grades at the 777 mine in Manitoba, though this was partially mitigated by higher throughput at the Constancia operation in Peru. Consolidated gold production reached approximately 40,000 ounces, a 12% increase from the previous quarter, driven by record production in Peru from Pampacancha. Consolidated zinc production fell by 23%, while silver production decreased by 2% compared to the first quarter, mainly due to lower grades and recovery rates. The consolidated cash cost per pound of copper produced was $0.84 in the second quarter, reflecting an improvement from the first quarter mainly thanks to higher by-product credits. Sustaining cash costs rose to $2.25 per pound in the second quarter due to increased capital expenditures, partially offset by higher by-product credits. We believe our consolidated cash costs and sustaining cash costs will remain within our annual guidance for 2021. Operating cash flow before adjustments for non-cash working capital was $133 million in the second quarter, up $42 million from the first quarter, primarily driven by higher metal prices and increased copper and precious metal sales, despite lower zinc sales. Adjusted net earnings and adjusted EBITDA for the second quarter were $0.02 per share and $143 million, respectively, after accounting for the net mark-to-market loss on financial instruments among other adjustments. As mentioned last quarter, sales volumes impacted by shipping delays in the first quarter were recognized as revenue in the second quarter, moderated by increased tax expenses. We concluded the quarter with $294 million in cash and equivalents, lower than the previous quarter mainly due to capital investments as we advance our growth initiatives in Manitoba and Peru, as well as interest payments. Our full-year 2021 production and operating cost guidance remains confirmed. On Slide 4, you can find a summary of our Peru business unit's operating results for the quarter. Constancia generated 19,000 tonnes of copper, 10,000 ounces of gold, 468,000 ounces of silver, and 295 tonnes of molybdenum. This production was higher than the first quarter due to increased throughput and better gold grades and recoveries. While molybdenum production is expected to fall below annual guidance in 2021, it aligns with the recently published mine plan for Constancia. We aim for all key metal production in Peru to meet our 2021 annual guidance. Ore mined in the second quarter was up 16% from the first quarter, reflecting strong operational efficiencies and a smooth ramp-up at Pampacancha, which reached commercial production in April. Ore milled during the second quarter was 17% higher than in the first quarter, although the prior period was affected by scheduled maintenance, slightly counterbalanced by increased ore hardness recently. Milled copper grades were lower compared to the previous quarter, consistent with the mine plan, while milled gold grades rose by 75% due to higher gold head grades from Pampacancha. This led to record gold recoveries in the second quarter. Unit operating costs improved compared to the first quarter, mainly due to higher ore milled, partially offset by increased costs linked to COVID-19 protocols. COVID-related costs in Peru totaled $6.3 million for the quarter, exceeding budget, and are expected to persist at these levels for the remainder of the year. Excluding these costs, unit costs were $10.40 per tonne in the second quarter, and we expect them to fit within the 2021 guidance after adjusting for the unexpected COVID-related expenses. Peru's cash costs remained fairly stable in the second quarter versus the first quarter, as higher mining and G&A costs from enhanced COVID-19 measures were generally offset by lower milling costs and increased gold by-product credits. Sustaining cash costs rose this quarter due to similar factors impacting cash costs, with some relief from increased sustaining capital expenditures. As previously noted, we achieved first production at Pampacancha in early April 2021, and the team executed a rapid and efficient ramp-up, aligning with timelines from our recent mine plan for Constancia. Slide 5 includes recent photos of mining activities in the Pampacancha pit, highlighting significant progress in the second quarter. Pampacancha enhances the Constancia mine plan by integrating higher copper and gold grades from 2022 to 2025, boosting annual copper production above 100,000 tonnes starting in 2022. Moving to the next slide on Manitoba, I want to take a moment to express our deepest condolences to those affected by the tragic fatality at Lalor in June. This incident marks the first fatality at Hudbay in over ten years, and we have conducted a comprehensive investigation into this heartbreaking event. We are dedicated to preventing such occurrences and have launched initiatives to implement lessons learned from this tragedy throughout our operations. Overall production in Manitoba for the second quarter was down from the first quarter, primarily due to COVID-19-related absences and disruptions at our Snow Lake and Flin Flon operations, a scheduled maintenance shutdown at Lalor, and a temporary halt in operations at Lalor by month-end June for the fatality investigation. The operations produced 21,500 tonnes of zinc, 4,400 tonnes of copper, 30,000 ounces of gold, and 218,000 ounces of silver. Lower grades, reduced recoveries, and ore stockpiling for the New Britannia mill also contributed to the drop in production this quarter. While ore mined during the quarter was down from the first quarter due to the aforementioned factors, gold grades improved as we transitioned into the gold grade zones at Lalor, in line with mine plan expectations. Copper, zinc, and silver grades decreased partly because of remnant mining at 777, which leads to greater variability as it approaches the end of its life, along with the mining sequences at Lalor. Development and underground construction activities continue in the lower section of the Lalor mine to support the startup and ongoing operation of the New Britannia mill. By the end of the second quarter, we had stockpiled approximately 47,000 ounces of gold as initial feed for the New Britannia mill, which marked an increase of 21,000 tonnes from the close of the first quarter. The additional mining activity aimed at increasing the gold ore stockpile has contributed to higher combined mine, mill, and G&A operating costs during the first and second quarters of 2021. The Stall concentrator processed all available ore in the second quarter, which was 12% lower than the first quarter of 2021. Stall recoveries during this quarter were higher for copper and lower for zinc and precious metals compared to the previous quarter, but were in line with the metallurgical model. Ore processed at the Flin Flon concentrator rose by 16% from the previous quarter due to processing available ore stockpiles. Unit operating costs slightly decreased compared to the first quarter and remained within the annual guidance range. The cash cost per pound of copper produced in Manitoba was negative $3.51, lower than in the first quarter primarily due to increased by-product revenues and decreased copper production. The sustaining cash cost per pound of copper produced fell to $0.36, a reduction from the first quarter owing to the factors impacting cash costs. We remain on track for full-year production of all metals and unit operating costs in Manitoba to meet the guidance ranges for 2021. Slide 7 elaborates on the New Britannia project progress. Refurbishment activities at the gold mill were finalized in June, with commissioning and startup occurring in early July. As previously mentioned, the first gold pour is anticipated in August, aligning with our guidance timeline and ahead of the initial schedule. We expect annual gold production from Lalor and the Snow Lake operations to exceed 180,000 ounces at average cash and sustaining cash costs, net of by-product credits, of $412 and $788 per ounce of gold for the first six full years of New Britannia's operations. Construction of a new copper flotation facility is also on track for commissioning and ramp-up in the fourth quarter of 2021. The overall project is roughly 95% complete as of the end of July. We have seen COVID-related cost pressures impacting the total project cost at New Britannia, along with cost escalations stemming from industry inflationary trends as the project nears completion. Consequently, we anticipate about $20 million in additional growth capital to be allocated this year to New Britannia. An extra $10 million is expected to be spent on advancing the Stall recovery improvement project, preliminary works for expanding Lalor to 5,300 tonnes per day, and addressing foreign exchange fluctuations. This additional investment reflects the next stage of growth in Snow Lake, where we are prioritizing low-capital, high-return brownfield growth projects that align with our recently published optimized mine plan. Therefore, Manitoba's total growth capital guidance for 2021 has increased to $105 million from $75 million. Slide 8 outlines the exciting exploration initiatives currently underway in each of our regions. In March, we announced our Copper World discovery, where our 2020 initial drill program identified high-grade copper sulfide and oxide mineralization on our private land in Arizona at shallower depths than Rosemont. The 2020 program confirmed four deposits at Copper World with a combined strike length exceeding 5 kilometers, and there are opportunities to discover additional mineralization between these deposits. Notable intersections included 440 feet of 1.38% copper and 246 feet of 0.7% copper starting at surface, showcasing the high grade and shallow nature of the copper mineralization. Our expanded 2021 exploration program at Copper World is progressing well, with 85,000 feet of drilling completed in the first half of the year and four drill rigs currently operating on site. We plan to publish an update once we receive the majority of assays for the drilled holes from the first half of 2021. We are currently advancing multiple technical studies for Copper World and assessing several targets identified through geophysical surveys on our extensive regional land package. An initial inferred resource estimate is scheduled for completion by the end of the year, along with a preliminary economic assessment in the first half of 2022. In Peru, we continue to engage in discussions with the Uchucarcco community about the highly promising Maria Reyna and Caballito properties, which are both located within ten kilometers of Constancia. At the end of June, we began drilling at the Llaguen copper porphyry target in Northern Peru, near Trujillo and close to existing infrastructure. The initial confirmatory drill program will consist of 5,000 meters, and two drill rigs are currently operational. Subject to positive results from this initial phase, we plan to begin a second phase aimed at defining an initial mineral resource for Llaguen in subsequent quarters. We completed an eight-hole drill program at the Quehuincha North target near Constancia during the quarter, intercepting copper sulfides and oxides but at grades too low to be economically viable. Our regional exploration efforts in the Snow Lake area are continuing, following the successful winter drill program in the Chisel Basin, where we discovered the copper-gold rich feeder of the 1901 deposit and confirmed high-grade zinc and gold mineralization through infill and extension drilling. Our summer program includes a follow-up limited drill program on a new target identified immediately north of the Lalor mine from a borehole survey completed earlier this year. Results from our 2021 drill program in Snow Lake will be integrated into the annual mineral reserve and resource estimates expected at the end of March 2022. On Slide 9, I want to highlight several ESG achievements and initiatives detailed in our 2020 Integrated Annual and Sustainability Report published in May. We firmly believe that continuously enhancing how we manage the social, environmental, and economic risks, impacts, and opportunities related to our operations is crucial for our long-term success. A significant part of achieving this is ensuring our disclosures are clear and transparent. Consequently, our Sustainability Report data aligns with the global reporting initiative, the SASB Metals & Mining industry standard, and TCFD standards. Moreover, we provide disclosures through the CDP Climate, Water, and Forests questionnaires. On the environmental front, I would like to point out that over 50% of our total energy consumption in 2020 was sourced from renewable energy, and all electricity in our operations comes from third-party suppliers via regional grids. This indicates that nearly all electricity generated in Manitoba is from renewable hydropower and over 50% in Peru is from renewable sources. We voluntarily adhere to multiple international best practice standards, including ISO 14001, ISO 45001, ISO 9001, Towards Sustainable Mining, the Voluntary Principles on Security and Human Rights, and International Finance Corporation Performance Standards. As a member of the Mining Association of Canada, we have implemented the Towards Sustainable Mining protocols at all our sites, striving for a score of A or higher on all protocols. A key requirement to maintain this commitment is ensuring our Tailings Storage Facilities follow the Canadian Dam Safety Guidelines, which aligns closely with the new Global Tailings Standard released in 2020. Safety is always our top priority, especially in light of the recent incident at Lalor. We foster a safety-focused culture at Hudbay and are committed to providing everyone with the necessary tools and protocols to return home safely after each shift. Our dedication to safety is unwavering, and we strive to continuously enhance our performance. We recognize the significant opportunity we have in the mining industry to positively impact both locally and globally for a more sustainable future. We will continue to use the 17 United Nations sustainable development goals as part of the 2030 agenda to inform and guide our business decisions and sustainability performance. I want to congratulate David Clarry, our Vice President of Corporate Social Responsibility, on his recent appointment as Chair of the Mining Association of Canada. This outstanding achievement is very well-deserved. As a leader in CSR, David is pivotal for positive change, and we believe he will help lead our industry and Hudbay to ever-higher standards at a crucial time for Canada's mining sector. To conclude, Slide 10 summarizes the various near-term catalysts ahead of us. We have an exciting second half of 2021 planned. In Manitoba, we anticipate our first gold pour this quarter and aim to complete the copper flotation circuit before year’s end. We will continue to execute the third phase of our Snow Lake gold strategy, including preparations for ramping up to 5,300 tonnes per day at Lalor and improvements at the Stall mill. Additionally, we will advance this year’s exploration in the Chisel Basin, with results to be incorporated into our annual mineral reserve and resource update in March of next year. In Peru, I mentioned the ongoing drilling at Llaguen and the potential initiation of a second phase aimed at defining an initial mineral resource estimate in 2022. We are optimistic about securing an exploration agreement with the Uchucarcco community for promising greenfield properties north of Constancia. In Arizona, we expect to provide an exploration update soon, followed by an initial resource estimate before year-end and a PEA in the first half of 2022. We also await a decision from the United States Ninth Circuit Court of Appeals regarding the Rosemont federal permit before the end of the year. At Mason, we will continue analyzing historical data on our land package in preparation for a future drilling program. As I mentioned earlier, we are a disciplined copper-focused growth company, and as we pursue the next phase of growth at Hudbay, our medium-term priorities include unlocking value at Rosemont, drilling the Copper World discovery, testing Constancia regional exploration targets, enhancing reserves in the Snow Lake mine plan, advancing projects at Mason, and optimizing value from Snow Lake gold, while remaining vigilant for other opportunities that align with our strategic goals and maintaining a prudent approach to managing our balance sheet. We are now happy to take your questions.

Operator, Operator

Thank you. We'll now begin the question-and-answer session. Our first question comes from Orest Wowkodaw of Scotiabank. Please go ahead.

Orest Wowkodaw, Analyst

Hi, good morning. Peter, I was wondering if you could give us a little bit of a refresher on Peru with respect to your stability agreement in terms of the longevity of it. And with the political changes there recently, has there been any engagement to-date or any color you can provide on whether the new administration plans could honor your existing stability agreement?

Peter Kukielski, President and CEO

Good morning, Orest, and thanks very much for the question. Yes, so absolutely we have a tax stability agreement in place in Peru that stabilizes administrative tax, free remittance of profits, and access to foreign currency rules through 2031 or 2032 for both Constancia and Pampacancha. Ultimately, it provides a corporate tax rate of 32% for this period, and it allows us to keep our accounting records in U.S. dollars for tax eliminating foreign exchange risk. In addition, it allows us to claim accelerated depreciation on renewable assets. There's other administrative stability that includes mining royalty rates in Peru. Now, your question, whether we think that the government might renege on that? I would say that the government would have to change the constitution in order to change or terminate legal stability agreements. In this case, the new constitution would have to allow for these changes or terminations and state that these changes could be retroactively applied to legal agreements under the previous constitution. We think this is pretty unlikely as it would violate several constitutional principles, and any changes to the constitution would require a majority vote in a much divided Congress. Remember that Mr. Castillo's government does not have majority in Congress, and the process to change the constitution would take one to two years because it would require either majority approval in Congress, in other words over 50%, or a referendum requiring two-thirds approval in Congress in two consecutive legislative sessions. So in the unlikely event that our stability agreement is ultimately changed or terminated, we of course have international arbitration rights available to us. And we don't think it will get to that point. Now to your second question, with respect to engagement with the current government, absolutely, we started our engagement with Mr. Castillo's government before he was named as President just because that's the right thing to do. We are engaged with the government at various levels and will continue to be engaged with the government. We understand fairly well what he is trying to achieve in Peru. And we do think that what he's trying to achieve in Peru is fairly well aligned with our practices at Constancia in any case. He is looking for what he calls social investment. And what we do at Constancia is precisely that—we have over $10 million targeted towards social investment this year, as well as being in a position to assist our communities with getting access to substantial additional funding that is available under the kind of mineral. So a long answer to your question or suggestion, we do certainly have engagement with the government.

Orest Wowkodaw, Analyst

And just as a follow-up, I mean given the current uncertainty or maybe perceived uncertainty has this changed at all some of your growth plans in Peru with respect to exploration on some of those other deposits or is this—do you think this has no impact?

Peter Kukielski, President and CEO

Orest, it doesn't change those times whatsoever, because we believe very, very strongly in the potential of those satellites north of Constancia. Regardless of what the fiscal environment turns out to be, we think that a discovery that is something like a Las Bambas or Antapaccay or something like that carries enormous value, regardless of that fiscal regime, and we will continue to pursue our efforts in metropolitan.

Operator, Operator

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

Jackie Przybylowski, Analyst

Thanks very much. Maybe I just follow up on Orest's last question. I know you noted in the release that you are working on Llaguen right now in Peru, but I think you had previously said you were expecting to be drilling at some of the other properties in Peru closer to Constancia like Maria Reyna, Caballito, and Uchucarcco this year. Can you maybe talk a little bit about what your exploration plans are for those properties that are closer to Constancia?

Peter Kukielski, President and CEO

Sure, Jackie, and thanks for the question. So we have already done, as I mentioned in my prepared remarks, some sort of pilot training at Quehuincha, but our focus is very much on Maria Reyna and Caballito right now. These are two properties that are owned by the Uchucarcco community. Our brilliant team is engaged with the community in order to reach an agreement to access those properties. We are hopeful that we will conclude that agreement by the end of this year. But remember what I've said previously, that once we conclude that agreement, there's still a way to go because we have to go through a consultation process. We need to go through environmental baselining and ultimately obtain the drilling permit needed to commence. So it's unlikely, I think that we would start actual drilling much before very late next year, if at all, although we would be able to start with a surface investigation as soon as we have a community agreement. And perhaps I'll just ask Cashel to comment if there's any other events that I haven't mentioned.

Cashel Meagher, Senior Vice President and COO

No, yes. I think that's right. Everything you said is correct. And as we know, what's happening in Peru, these negotiations take some time. And Jackie, you mentioned again, our drill program is underway there. We're drilling; we're confirming the previous 20 or several holes that were drilled by Valley; that's going well with community participation. We've had no interruptions, and we hope maybe in the next quarter or two to be able to get some results out from that drilling. So it shows that drilling can be accomplished in Peru, in difficult areas, and we're still working towards our agreements with Uchucarcco.

Jackie Przybylowski, Analyst

Thanks very much. And maybe that's a good segway, speaking of difficult areas. You didn't really talk a lot about Rosemont in your release this time, and certainly, there's a lot more commentary on Copper World. Can you maybe give us a bit of an update? I know it's difficult given that you don't have the court ruling at Rosemont yet, but is Copper World looking like relatively more attractive at this point, would you say, versus Rosemont, or can you give us any commentary on how those two projects stack up against each other?

Peter Kukielski, President and CEO

Jack, that's a super interesting question. And I would say that our top priority remains to get Rosemont through the Ninth Circuit Court of Appeals; that is priority number one. But the Copper World discovery certainly does provide us with a very, very interesting either alternative or add-on. We've done a lot of work on Copper World. We've identified four separate deposits with potential for several more in a strike length of about five kilometers. Some of those drill results that I mentioned are pretty outstanding, and the most interesting feature is that mineralization starts from surface. So clearly, it's something that you can get into right away. We have to complete the assay program that's currently underway, so that we can develop that inferred resource by the end of the year, which will help us complete a PEA early next year. That really will inform us with respect to how one stacks up against the other. In any case, I'd like to come back to my initial comment that Rosemont does remain a priority for us, but Copper World presents a super exciting potential alternative or addition.

Operator, Operator

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

Greg Barnes, Analyst

Hi Peter, I'm just going to follow up on Jackie's question on Copper World. Just assuming you'd go ahead with that alone for argument's sake. We're looking at, I'm assuming, separate four deposits as you noted, four separate rigs with a centralized milling facility. Obviously, you need tailings. Do you have the space? What is the concept that you're working on for the PEA?

Peter Kukielski, President and CEO

Yes, Greg, good morning, and thank you for that. So remember that there's a combination of oxide mineralization and sulphide mineralization. So there's potential, obviously for an oxide operation, as well as a sulphide operation. We have adequate land on which to deposit tailings as well as on which to deposit waste rock. So we feel fairly comfortable about that. Now the key will depend on the mineral processing technical studies that we undertake as to what the processing routes for the oxide might be. So before we complete that work, we don't know whether it's going to be an SOPW plant or what, but for sure there would be a combination of two plants in order to treat on the one hand oxide mineralization or the oxide, or on the other hand, the sulphide. Cashel, do you want to elaborate on that at all?

Cashel Meagher, Senior Vice President and COO

Yes, sure. It presents a great, good problem for engineers, geologists, and our metallurgists. What we're discovering is that, exactly what Peter said, oxide mixed transition and also sulphide ore, so there's a combination of flow sheets that might be optimal. There might be a starter mine on an oxide. There might be a sulphide degradation plan certainly building the future of a sulphide location. So what we're doing is we're doing the proper leaching tests to understand exactly what that is, and that takes time—that's six or eight months. So that's something we expect, maybe by the end of this year or very optimistically, more likely early next year or into next year. And so we're doing all that work—that's the metallurgical work. We continue with four drills right now. We're turning; we're following up on our drill intersections on the private land. One of the things our engineers are looking at is optimizing that drill program to understand where this mineralization is on private lands in the future, if it extends onto government land, how do we optimize those pits and the placement of waste, the placements of tailings, etc., etc. So we're working towards it. It's going to take again, the better part of the rest of this year to figure out our mine plans. But we think with the lower strip ratio, when in comparison to Rosemont, it'll present a very positive set of economics and a very compelling case to move forward.

Greg Barnes, Analyst

And I don't understand what the permitting approvals process is on private land versus government land. So what do you need to do to move forward with this from that perspective and how long would it take?

Peter Kukielski, President and CEO

Greg, there are only two primary state permits that are required. One is an Air Quality Permit, and the other is an Aquifer Protection Permit. As I said, those are both effective permits and are much simpler than the federal permits. The duration required for each of those permits is, I would venture to guess, about one to two years.

Cashel Meagher, Senior Vice President and COO

Yes. I think that's right. Those, if you remember, are the two types of permits we successfully defended in the past at Rosemont.

Greg Barnes, Analyst

And most of the permit with whatsoever required?

Peter Kukielski, President and CEO

That is the goal.

Cashel Meagher, Senior Vice President and COO

That's the goal with the current mine plan we're trying to obviously construct.

Operator, Operator

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

Lawson Winder, Analyst

Hey guys, good morning. Congratulations on concluding those, the majority of those union agreements. Maybe just some of those good collective bargaining agreements, is there potentially any cost pressures, for example, were there any signing bonuses, maybe it's the ones in Peru, some of those production rates is built into those contracts?

Peter Kukielski, President and CEO

Lawson, I'd say in general that the agreements that we concluded in Peru are consistent with everything else that's being done elsewhere in Peru. I don't think that there's any material effect on our overall costs.

Lawson Winder, Analyst

Great. And then just on the COVID costs in Peru, so they stepped up a bit in Q2 versus Q1; now still early in Q3, but where are you seeing those costs trending so far? Are they continuing to march up? Are they starting to dissipate at this point?

Peter Kukielski, President and CEO

Lawson, what I would say is that we expect them to be flat for the remainder of the year. So I had mentioned that we had $6.3 million of COVID-related costs in the second quarter. These costs arise out of an abundance of caution with how we operate online. For example, we have extended the duration of the quarantining in Cusco and Arequipa. We have in several cases demobilized on a progressive basis operators from the mine when we've had events that have suggested that we should exercise caution. So we expect that to continue at that level for the remainder of the year. So, roughly, I would say probably $35 million or so for the year in COVID-related costs that's flat from now on.

Lawson Winder, Analyst

Okay, great. That's very helpful. And then also on the freight and related costs in Peru, they also seem to tick up quite a bit in Q2 versus Q1 at least on a per tonne of con basis. Is the Q2 level sort of persisting in Q3? Is that what we should expect for the remainder of the year as well?

Peter Kukielski, President and CEO

We have more sales, so on a relative basis; we shouldn't expect any significant change.

Lawson Winder, Analyst

For us in Q2, okay. Great. Yes. And then just finally on the exploration agreements for access to Maria Reyna and Caballito, will those—once a settlement is reached, will there be any sort of community cash payments that will be made, or is this just an agreement in principle that sort of sets the stage for future exploitation, consultation, where there will be a cash payment?

Peter Kukielski, President and CEO

There will no doubt be some cash payments to the community, because that's the only incentive that they really have other than the potential for a mine on the road, but they would be looking for some interim cash payments, of course not at the same level as exploitation agreement levels.

Operator, Operator

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

Stefan Ioannou, Analyst

Hey, thanks very much guys. I'm just, I guess, on the question about the COVID costs in Peru, just to be clear, you mentioned, your guidance still stays in effect for 2021. Just wondering is that based on cost to-date and then cost going forward, including or excluding that sort of give or take $6 million quarter run rate?

Peter Kukielski, President and CEO

Just so that I understand your question fully, you're asking me if the costs—the $6.3 million are costs just in the quarter. And if we expect that run rate that is around—

Stefan Ioannou, Analyst

Well, I guess if you have another sort of $12 million through the remainder of this year, will you still be in line with your cash cost guidance for the year, or will that put you over?

Peter Kukielski, President and CEO

We would obviously have to adjust the guidance. But we've been saying we are all within guidance, excluding those COVID-related.

Stefan Ioannou, Analyst

Excluding.

Peter Kukielski, President and CEO

Yes.

Stefan Ioannou, Analyst

Okay. Okay. Got it. Thanks. And it looks like my other questions have been asked, but just can you maybe just give us a bit of an update on sort of the Flin Flon strategy here going forward, obviously 777 is still scheduled for closure, I guess in June or so of next year. Is the plan—still to put the concentrator and tailings on care and maintenance and then shut everything else down? Or where are we at with that?

Peter Kukielski, President and CEO

Yes, we will put the—obviously 777 mine itself will be closed and then we would put the process facilities on care and maintenance.

Stefan Ioannou, Analyst

Okay. And is the refinery going to be closed or put on care and maintenance?

Peter Kukielski, President and CEO

Sorry, the zinc plant will be closed.

Stefan Ioannou, Analyst

It will be closed. Okay. Okay, great. Thanks very much guys.

Peter Kukielski, President and CEO

You’re welcome.

Operator, Operator

Our next question comes from Dalton Baretto with Canaccord. Please go ahead.

Dalton Baretto, Analyst

Thanks. Good morning, Peter and team. Peter, I'm trying to understand the go-forward plan for Rosemont here post the decision. So if you win, I mean, no doubt, it's going to be appealed and that's likely going to take a couple of years. So kind of a two-part question. Number one, are you willing to move forward with major investments, given the uncertainty around that; and number two, how is that appeal going to impact your search for a partner on the project?

Peter Kukielski, President and CEO

Good morning, Dalton. Thanks for the question. Look, I think that there is no point for us. There's no point in us searching for a partner until we have—until the field is behind us. So that's one thing for certain. And the other piece is that if we win that appeal, I'd like to say when we will win that appeal, but if we win that appeal, as you have suggested, it’s just not smooth sailing because there are a number of things we have to do. We would have to revalidate the estimate because some time has passed. But number two, the case under review by the Ninth Circuit Court of Appeals is effectively the keystone case that would stop all activities with a singular decision, which is why we think Judge Federal landed on that ruling in the first place. There are several other decisions that remain to be made, which, in fact, could impact how this project is moved forward. The other thing to note, of course, is that the biological opinion is still being addressed by the forestry service and needs to come back to the court. There are a number of things that could extend the period of time required in order to implement construction at Rosemont. So what I'm trying to say to you is that you are exactly right, and that is at least a couple of years that would be required probably in order to start moving into the field.

Dalton Baretto, Analyst

So, given that scenario, does it make sense to also consider Rosemont in the context of Copper World and on private land only?

Peter Kukielski, President and CEO

100%, and in fact, what I should have said as part of my response to the first part of your question was that although we see that there's some time required in order to resolve Rosemont, regardless of whether we get the decision now or not, Copper World is a very compelling alternative, if we need an alternative or a very, very compelling add-on. But for sure, we are going to push Copper World forward very hard. I think the timeline that we have offline specifically that we're going to complete an inferred resource by the end of the year and publish a PEA early next year should give you a sense of the value we place on this deposit and the potential alternative or incremental effect that it could have with respect to Rosemont.

Operator, Operator

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

Candace Brûlé, Director of Investor Relations

Thank you, operator, and thank you, everyone, for taking the time to join us today. Please feel free to reach out to our Investor Relations team if you have any further questions. You may disconnect your lines at this time.