Hello, and welcome to MMG's third quarter production report teleconference for 2020. This report and today's discussion cover the operational performance of MMG's assets for the September quarter. Joining us today is Chief Executive, Geoffrey Gao, and MMG's executive team. I will now hand over to Geoffrey, who will discuss the highlights in the report, after which there will be an opportunity to ask questions.
Thank you, Blake, and hello to everyone who has joined us today. As everyone on the line today would be aware, at MMG, our first value is safety. In the third quarter, our operations recorded a total recordable injury frequency rate of 1.35 per million hours worked. This was a pleasing result and improvement on the prior quarter. We continue to benchmark at the lower end of global peers on injury frequency. But along with our peers, the journey to zero harm remains a work in progress. MMG's operations produced over 102,000 lbs of copper and 61,600 lbs of zinc during the September quarter. Production volumes, specifically copper at Las Bambas, continue to be impacted by COVID-19. In spite of these challenges, the quarterly production result represents an increase of 33% and 2% respectively for copper and zinc on the June 2020 period.
I am pleased again to report that MMG has not recorded a case of COVID-19 at any of our sites. Rigorous procedures to safeguard our people are tailored to the unique challenges in each region and continue to be effective. Nonetheless, cases of COVID-19 in employees and contractors in the D.R.C. and Peru have been detected in advance of travel to site, and continue to impact our operational performance through reduced workforce availability, in particular at Las Bambas. A state of emergency remains in place in Peru, and the shortage of COVID safe accommodation, both at site and in local communities, has restricted workforce availability and a return to normal operations. In particular, this impacts our mine plan compliance, maintenance, exploration, and community engagement activities.
We continue to direct available resources to maximize efficiency and prioritize mining of accessible ore at site as we prepare for a return to full scale operation as soon as possible, with ongoing work to expand accommodation options at and around the mine site. Despite ongoing constraints, Las Bambas increased its copper output by 44% during the September quarter compared to the prior period, producing over 84,000 lbs of metal. Although workforce availability still fluctuated between 65% and 80% during the quarter, these lockdown measures provided a higher degree of stability than earlier in the year. Higher ore grades and recoveries also assisted in achieving this improved result. Turning to community relations. Following the resolution of a blockade at Espinar, which ran from late July until August 9, the company was able to gradually ramp up the trucking of concentrate along the southern road corridor.
Volumes have returned to full capacity of 125 trucks per day by early September, allowing us to again draw down concentrate stock levels at site. Disappointingly, a blockade was established in the communities of Totora and Ccollana, some 200 km from Las Bambas, on October 17th. A peaceful resolution has, however, since been reached with community members, and trucking resumed on Friday, October 23rd. Given the relatively short-term nature of this event, its overall impact was limited. South America in general, and Peru in particular, continue to be heavily impacted by COVID-19. Despite the ongoing uncertainty, MMG is confident in the controls and risk mitigation procedures we have established to address the situation.
As such, we are now in a position to provide two-year guidance for Las Bambas. Copper production is expected to be between 305,000 lbs and 315,000 lbs, with a full year C1 cost of between $0.95 and $1 per pound. Guidance for 2021 for Las Bambas and other MMG operations will be updated in early 2021, with our annual life of mine and budgeting process underway. At Las Bambas, the ongoing impact of COVID-19 on mine development, community engagement, and the permitting means that many of the transitional activities we had planned for 2020 will now take place in 2021. This includes the development of the Chalcobamba pit. While we continue to expect formal government permitting to be obtained by the end of this year, further community engagement will be required before we can begin significant development.
First ore is now anticipated at some stage in the first half of 2021, and this delay can be expected to impact next year's guidance. At Kinsevere, copper cathode production of over 18,000 lbs was broadly in line with expectations and consistent with the site's recent performance. The third quarter saw a significant increase in mining volumes. This came in advance of the temporary suspension of mining activity, a decision that was taken to optimize site works during the wet season and to provide for planning flexibility in advance of the potential transition to mining of sulfide ores. It is expected that mining will recommence early in the second quarter of 2021. The temporary suspension of mining will not impact milling volumes, with significant ore stockpiles on-site at Kinsevere.
We maintain our 2020 production and cost guidance, but note that production volumes over future years will be impacted by the lower-grade ores from stockpiles and depleting oxide ore reserves in the mine. We anticipate a decision in coming months on the next development phase at Kinsevere, which will potentially see a shift to the mining and processing of sulfide ores and the introduction of a cobalt circuit. Should the development project proceed, we anticipate production volumes returning to around current levels. I will now move on to our zinc operations, Dugald River and Rosebery. At Dugald River, a sustained focus on the opening up of new mining fronts continues to pay dividends, with monthly records set for the volume of ore delivered to the service in both July and August.
A steady flow of ore to the mill has allowed for stable metal production, with over 46,000 lbs of zinc delivered during the quarter. This represents a 6% increase on Dugald River's second quarter result and demonstrates the sustained improvement in recoveries flowing from enhancements made to the grinding process earlier this year. Further supporting the September quarter result was a 9% increase in zinc ore grades. While obviously a pleasing outcome, we remain cautious regarding the delivery of these improved grades on a sustainable basis. Stable ore supply and strong operational performance in the mill and the processing plant will assist in offsetting the impacts of any future grade declines. Together with positive early drilling results, which suggest a wider zinc ore body than originally expected, this provides confidence that Dugald River can achieve zinc production approaching 200,000 tons by 2022.
This also opens the potential for mine life expansion and expansion of the operation should positive drilling results continue to be received. At Rosebery, the third quarter saw a significant uplift in mine flexibility and the number of accessible operating areas. This came after permission was given to re-enter lenses impacted by seismic events in 2019. It enabled a material increase in mine output and mill throughput compared to the prior two quarters of 2020, and ultimately, higher metal production than would otherwise have been achieved. Zinc production for September quarter of just over 15,500 tons reflected the deferral of mining of some higher grade stopes until the fourth quarter, together with anticipated lower ore grades more generally as mining activity continues to move deeper. Recoveries were also impacted by high pH levels. Conversely, there was an increase in lead production as a result of improved lead grades and recoveries.
Reflecting the strong contribution of precious metal by-product credits and ongoing cost efficiencies, we are revising our 2020 cost guidance for Rosebery downwards, with full year C1 costs now expected to come in below $0.10 per pound. This is less than half our original expectation. Despite its age and the depth of current mining activity, Rosebery remains a highly cash generative operation, and I reaffirm our commitment to the investigation of options for the extension of the operating life of this asset. I am now happy to take your questions. I would ask that all questions be directed to me in the first instance. I will then call our members of the executive team to respond as appropriate. Please, can all questions be asked in English? And we will arrange for translation for Mr. Wei to be able to address Las Bambas related matters.
I will hand over to the moderator.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Han Fu with JPMorgan . Please go ahead.
Hi. Good morning, Gao. Thanks a lot for the presentation. May I ask about three questions about Las Bambas? The first one is, what is our destocking prospect for the rest of this year? I can notice by the end of September, there is a 47,000 tons. It is about the similar level of the beginning of the year, but, what do we expect to do within the fourth quarter in terms of the destocking? The second question is, what is the latest local government requirement about our labor arrangement for Las Bambas on site? Do we expect any arrangement change coming into 2021, either from a policy change perspective or from our labor force management perspective? The third question is, when Chalcobamba gets commissioned, how much incremental volume can we expect from that? Does that push the overall Las Bambas annual production to somewhere north of 400,000 tons?
That is all my questions. Thanks a lot.
I think a question, but just to clarify your second question, is that related to the government requirement regarding the COVID-19 protection for people?
Yeah, that's the second question. In the past quarter, the labor availability is about
Okay.
65%-80%, right? What's going to be maybe the outlook for next year? Is there any policy change or our human resource management change that we might alter that labor availability? Thanks.
Okay, understood. I will ask Mr. Wei to answer these questions, and I will ask Maggie to make the translation.
Thanks, Geoffrey. [Non-English content]
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Just in answering your first question. As of July 31, there are around 143,000 tons of concentrate on site with the increase due to the restrictions imposed by the community blockade at Espinar. At the end of September, around 131,000 tons of concentrate on site. With 125 trucks per day resuming from early September after the Espinar blockage. However, this could be expected to be increasing again due to the new social community issue at Tuntuma. At September 30, the site of stock level is, as I just said, 131,000 tons of concentrate, which represents around 40% of the total site storage capacity used. However, on September 28, the logistic transport 100% recovered, and the inventories are planned to be reduced through the late in the first quarter of 2021.
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Fu Han, in answering your second question. The Peruvian government decided to restart the economy reactivation in four phases, while the mining is the first one. However, one of the biggest problems for mining companies is the health of employees who continue to show many cases of COVID-19 infection prior to traveling to the mine operations. A lack of COVID safe accommodation is preventing mining companies from having 100% availability of the personnel on site.
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Further to the second question, Las Bambas has been able to maintain continuous operations throughout the COVID pandemic, and the activity levels have fluctuated. However, during the third quarter continued to be impacted by the availability of workforce and COVID safe accommodation on site and in the surrounding towns. The workforce rate has fluctuated on a shift change base of 65%- 80% of the average. Currently the mine is operating at approximately 95% with an average of 85% of the workforce. The expectation for the fourth quarter is to operate at near 100% with an increased level of workforce on-site as we develop additional accommodation options.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. We will now pause momentarily to allow questioners to enter the queue.
Sorry, [inaudible]. I think we still owe the answer to the third question. Probably I can answer that question on Las Bambas. The question around the production contribution from Chalcobamba to Las Bambas. The exact number of production contribution from Chalcobamba will vary year from year. The key contribution, I would say that is because in the early stage of Chalcobamba, we got some high-grade ore supply, probably above 1%. With that high-grade ore supply of Chalcobamba, we can compensate the great decline in the existing Ferrobamba pit and maintain the previously communicated production profile around 400,000 tons. So it's more like to maintain the desired production level rather than we can increase the metal production level significantly through the ore supply of Chalcobamba. I hope I answered the question.
Thank you. Your next question is from Jack Shang with Citi. Please go ahead.
Hey, thank you, Geoffrey. Hear me okay?
Yes.
Okay. Thank you for the presentation. I have two questions regarding Las Bambas. The first one is regarding the ore grade and also associated cost levels. The ore grade based on your production report in the quarter declined to 0.68%. There has been a declining trend since Q4 last year. Can you provide us some color on what the ore grade is going to look like roughly getting to 2021? Actually, your C1 cost has been maintained at around $1 per pound level, which is impressive. With the declining ore grade, any color on the potential direction for the C1 getting into 2021 if you continue to have the existing ore grade decline going forward in 2021? Also a related question on the CapEx at Las Bambas. What is the required CapEx to bring up Chalcobamba?
That's the first one on the Chalcobamba pit. The second one is, what is the CapEx level after Chalcobamba gets online, say, beyond 2021? What is the sustainable CapEx level at Las Bambas itself? Thank you.
Thanks, Jack.
Maggie, would you make the translation for him?
Sure. [Non-English content]
Thanks, Jack.
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[Non-English content ] Jack, in answer the first question around the ore grade. The grades at Ferrobamba are naturally declining as the pit is depleted. Grades are also responding to mine sequence adjustments, which has been material through the COVID-19 impact. Las Bambas team is working to bring the Chalcobamba pit online as quickly as possible, and the higher grade ore from this pit will supplement Ferrobamba ore over coming years. At this stage, the expectation is the first ore from Chalcobamba will be delivered to the mill in the first half of 2021.
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The CapEx for the sustained development of Las Bambas is very important. There are some deferred CapEx in 2020 due to the time issue. However, this year we expecting around $450 million for the CapEx level, which $200 million is related to the mining CapEx.
Ross, you may have to add some further comment on the CapEx of Las Bambas.
Yeah, thanks, Geoffrey. In regard to our overall CapEx, we are looking at between $500 million and $550 million, which is well down on where we set our guidance would be at the start of the year. The reason for that is that we haven't been able to execute all our capital because of a shortage of people and the shortage of accommodation on site. Also our capitalized mining is lower, will be lower for that whole year as well. Because when we have had people on site, we are obviously focusing on mining ore, where we can, and potentially sacrificing the waste movement this year. Naturally, next year, that means we are going to have some carryover from this year, both in the pure CapEx and also waste mining itself. We will give guidance on that in January when we do our Q4 report.
I think you can expect it to be somewhere between $600 million and $700 million, but we are still doing our budgets at the moment. It will be a significant increase on this year.
Thank you, Ross.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. We will now pause momentarily to allow questioners to enter the queue.
Just while we are waiting, I could perhaps also add to the previous question that Jack asked, if that was okay.
Yeah, Ross, you move up.
Yes. Jack, you mentioned about the ore grade dropping to 0.68% in the third quarter. While it is true our grades are dropping over time, that drop down to 0.68% was unusual, and the reason for that was that we were behind in our waste stripping because of COVID-19, and that stopped us from getting to some higher grade pockets. So it came in well below where we expected as well. But for this quarter, or the fourth quarter, we will see that grade coming up again. So yeah, do not see that 0.68% as a normal grade.
Yeah. Thanks for that, Ross.
Thank you. There are no further questions at this time. I will now hand back to Mr. Gao for closing remarks.
Okay. Thank you. 2020 has for all of us been a year unlike any other. Also, great uncertainty remains. We look forward to a strong fourth quarter and moving forward with optimism into the new year. Underpinned by the fundamental long-term strengths of our key commodities, exciting development and exploration opportunities, and increased stability in the COVID normal environment, there is an exciting and bright future for MMG. I thank all of our stakeholders for their continued support. Thank you for joining us today. If you have any further questions, please follow up with our investor relations or corporate affairs teams. Goodbye.