Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hudbay Minerals Inc. First Quarter 2023 Results Conference Call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would like to remind everyone that this conference call is being recorded today, May 9th, 2023, at 8:30 A.M. Eastern Time. I will now turn the conference over to Candice Brulé, Vice President, Investor Relations. Please go ahead.
Thank you, operator. Good morning, welcome to Hudbay's 2023 first-quarter results conference call. Hudbay's financial results were issued yesterday and are available on our website at www.hudbay.com. A corresponding PowerPoint presentation is available in the Investors Events section of our website, 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 Lei, our Chief Financial Officer, and Andre Lauzon, our 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 on SEDAR and EDGAR.
These documents are also available on our website. As a reminder, all amounts discussed on today's call are in U.S. dollars unless otherwise noted. Now I'll pass the call over to Peter Kukielski.
Thank you, Candace. Good morning, everyone. Thank you for joining us. In today's presentation, I'll discuss our first quarter results, touch on the operating and financial performance of the business, and provide some insight into recent strategic initiatives and corporate achievements. As I've said before, I truly believe one of Hudbay's greatest strengths is our disproportionately talented team for a company of our size. To complement this team, we brought in Warren Flannery as Vice President, Business Planning and Reclamation. His experience will be a welcome addition to our organization to enhance our capital planning and operations strategy, as well as reclamation and management of non-producing facilities. In the quarter, we promoted Javier Del Rio to Senior Vice President, South America and U.S.A, and Olivier Tavchandjian to Senior Vice President, Exploration and Technical Services.
These team members will be instrumental in continuing to drive our strategic initiatives. In the first quarter, we took some meaningful steps to position the business to deliver sustainable cash flows through disciplined capital allocation and to expand our copper production profile. We continue to focus on our commitment to maintain a strong culture of safety and commitment to our local communities while improving our low carbon footprint. The team successfully navigated the recent Peru logistical interruptions to achieve a very strong start towards meeting our full-year operating and cost guidance at Constancia, and we are executing debottlenecking initiatives to increase the output from our Lalor mine in Snow Lake. We took several prudent measures this quarter to improve our free cash flow for 2023, and we remain focused on being disciplined with capital allocation as we continue to de-risk our Copper World project in Arizona.
We also seized an opportunity to diversify our operating portfolio and expand our copper production scale with the recently announced agreements to combine with Copper Mountain in British Columbia, which is expected to close in late June. We are well-positioned to deliver sustainable cash flow from our operating portfolio, as well as to drive organic growth through advancing our leading organic copper pipeline. Moving to the first quarter results on slide three, first quarter consolidated production was in line with our expectations and is on track for stronger production levels in the second half of 2023. We are reaffirming our 2023 production guidance for all metals. Consolidated copper production was 23,000 tons, a decrease compared to the fourth quarter, primarily due to lower copper grades in Peru as planned.
Consolidated gold production was 47,000 ounces, a decrease primarily due to lower gold grades in Peru, partially offset by higher throughput in gold recoveries in Snow Lake. Consolidated zinc production was approximately 10,000 tons, higher than the fourth quarter, primarily due to improved zinc grades and throughput in Snow Lake. Consolidated copper cash costs improved to $0.85 per pound from $1.08 in the prior quarter, primarily as a result of lower mining and freight costs and higher byproduct credits, partially offset by lower copper production. Similarly, copper sustaining cash costs declined to $1.83 per pound, a decrease from the fourth quarter due to lower sustaining capital expenditures and capitalized exploration.
Both measures are anticipated to continue to decline in future quarters with higher production and precious metal byproducts. We reaffirm our 2023 consolidated cash costs and sustaining cash costs guidance. First quarter operating cash flow before changes in non-working capital was $86 million. Adjusted EBITDA was $102 million. This was a decline from the fourth quarter as a result of lower copper and zinc sales volumes, partially offset by higher realized prices. With a focus on generating positive cash flow and strong returns on invested capital in 2023, we are committed to deleveraging and disciplined capital allocation. This is demonstrated through several prudent measures we took this quarter to improve cash flow. First, our Peru team reduced concentrate inventory levels at site well ahead of schedule, which helped to improve operating cash flow during the quarter.
Second, in an effort to ensure we receive full exposure to the strong gold prices, we amended our gold forward sale and prepay agreements to defer eight months of delivery, starting with February 2023 into 2024. This is expected to increase our 2023 cash position by approximately $53 million to support our continued focus on reducing net debt. Third, as an additional prudent measure to ensure free cash flow generation and financial discipline, we extended our existing quotational period hedging program for approximately 8,000 tons of contained copper in the previously unsold concentrate inventory in Peru to lock in prevailing copper prices. We also entered into a zero-cost collar program in April for approximately 10% of copper production expected in the second half of 2023.
The program establishes a floor price of $3.95 per pound and upside to $4.28 per pound. Lastly, we are on track to deliver our discretionary spending reduction targets by reducing growth capital and exploration spending by $65 million in 2023 compared to 2022. At the end of the first quarter, our liquidity included $256 million in cash and $355 million in undrawn availability under our revolving credit facilities. Moving to slide four, to summarize our Peru operating results. During the first quarter, Constancia produced 21,000 tons of copper, 11,000 ounces of gold, and 552,000 ounces of silver. Production levels were lower than in the fourth quarter of 2022 due to lower grades from the processing of stockpiles.
This was anticipated as part of our mitigation efforts during a period of logistical interruptions from Peru civil unrest in early 2023. I'm very pleased with and proud of the team's efforts to successfully navigate the complex environment in Peru. In the face of supply chain disruptions, the team has done a tremendous job to ensure that Constancia maintains steady operations and strong cost control during the first quarter. The teams continue to operate safely and with the support from our local communities. Transportation logistics have normalized since mid-February, and we have significantly reduced concentrate inventory buildup at the mine. Ore mined from Pampacancha in the first quarter was 897,000 tons at record high grades of 0.49% copper and 0.52 g per ton gold.
Despite this achievement, total ore mined in the first quarter was lower than the prior quarter due to processing of stockpiles in order to conserve fuel during the civil unrest period. The logistical risk mitigation plans implemented during the first quarter, together with strong continued support from the local communities, enabled our plants to continue to operate uninterrupted at full capacity, supplemented with approximately 3.9 million tons of stockpile ore. Recoveries of all metals during the first quarter were lower than the fourth quarter due to higher levels of impurities in stockpile ore. Full mining activities resumed in the Pampacancha pit in February, and the planned period of higher stripping from March to June is progressing well, with mining of higher grade ore now expected to commence late in the second quarter, slightly ahead of the original schedule.
We are on track to achieve full year 2023 Pro-Peru production guidance, with expected production to be higher in the second half of the year, following a period of higher stripping activities in the Pampacancha pit in the second quarter. Unit operating costs in the first quarter were 16% lower than the fourth quarter, primarily due to lower mining costs. Peru's cash costs for the first quarter were relatively unchanged from the prior quarter at $1.36 per pound. Cash costs are expected to decline to be within the 2023 guidance range, with higher expected copper production and contributions from precious metal by-product credits later this year. Sustaining cash costs were also relatively in line with the fourth quarter at $2.12 per pound, as lower mining costs and capitalized exploration were offset by lower copper production.
Moving to the next slide on Manitoba. Production at our Snow Lake operations included 36,000 ounces of gold, roughly 10,000 tons of zinc, 2,000 tons of copper, and 151,000 ounces of silver. Production of gold, zinc, and silver were higher than in the fourth quarter, with higher throughput and higher grades. Copper production was lower than the prior quarter due to lower head grades. With the completion of a number of key initiatives aimed to support higher production levels at Lalor, improved metal recoveries at the mills, and prioritization of mining higher gold grade zones at Lalor throughput the year. Full year Manitoba production of all metals remains on track to achieve guidance ranges for 2023.
Ore mined at Lalor was slightly higher than the prior quarter, despite being impacted by stope muck fragmentation issues that created delays at the rock breakers and low scoop availability in March. We implemented changes to improve stope fragmentation and scoop availability, which together with the many production optimization initiatives underway at Lalor, resulted in Lalor achieving higher production levels of 4,800 tons per day late in the first quarter and throughout April.
The Manitoba team continues to advance key initiatives to support higher production levels and improved metal recoveries and have made significant progress in building long haul inventory, optimizing the development drift size, and focusing on shaft availability improvements while minimizing inefficient trucking via the ramp. The first phase of the Stall Mill Recovery Project, consisting of new cyclone packs, state-of-the-art Jameson Cell in the copper and zinc circuits, and process control improvements, is on track for commissioning in May, with ramp-up to higher metal recoveries by mid-2023. The Stall Mill processed 19% more ore in the first quarter compared to last quarter. The New Britannia Mill continued to achieve consistent production above its nameplate capacity, averaging approximately 1,590x per day. We continue to advance New Britannia improvements focused on reducing reagents and grinding media consumption.
These initiatives entail minimal capital outlays while further improving overall metal recoveries and copper concentrate grades. Combined units operating costs in the first quarter decreased by 10% compared to the fourth quarter as a result of higher throughput arising from our production efficiency initiatives. Manitoba's gold cash costs were $938 per ounce, slightly higher than in the fourth quarter due to lower by-product credits and higher G&A, partly offset by higher gold production. Full-year cash costs are expected to decline to be within the 2023 guidance range, with increasing gold production throughout the year from higher grades and output at Lalor and the planned completion of the Stall Recovery project in the second quarter. Gold sustaining cash costs were $1,336 per ounce, lower than the fourth quarter, primarily due to lower sustaining capital expenditures.
On April 13th, we entered into an agreement to acquire all of the issued and outstanding common shares of Copper Mountain Mining Corporation to create a premier Americas-focused copper mining company. The combined company will have annual copper production of 150,000x per year from three long life mines and will have a world-class pipeline of organic copper growth projects. The combined company will represent the third largest copper producer in Canada based on 2023 estimated copper production. The transaction is expected to close by late June. This combination is on strategy, it offers several strategic benefits as shown in slide six. First, Copper Mountain enhances the scale of our business with a total of six key operating and development assets and one of the largest copper mineral resource bases among our peer group. Second, it geographically balances our portfolio in top-tier jurisdictions.
On a pro forma basis, the combined net asset value is estimated to be 55% from North America and 45% from South America on a street consensus basis. Third, it increases our exposure to copper with expected 2023 copper production of more than 150,000 tons. This is complemented by meaningful gold production that helps maintain a strong position on the copper cost curve. Fourth, we have a great opportunity to unlock value at the Copper Mountain Mine using our high efficiency framework from our Constancia Mine, given the similarities between the two mines. Fifth, the combination provides incremental cash flows, which further strengthens the balance sheet and accelerates our deleveraging initiatives. Lastly, the combination will allow us to unlock value from a larger organic growth pipeline by more efficiently allocating capital to projects that yield the highest risk-adjusted returns.
The combined company is well-positioned to deliver sustainable cash flows with compelling organic growth as well as valuation re-rate as a larger, more diversified copper producer with enhanced liquidity. The transaction meets our stringent financial and strategic acquisition criteria for pursuing value accretive opportunities, and the incremental diversified cash flows will further strengthen our balance sheet and support both our deleveraging and growth initiatives. Turning to slide seven. We think there's substantial opportunity to unlock value at Copper Mountain for the benefit of all shareholders. One of our core competencies at Hudbay is operating efficiency, as demonstrated by Constancia's leading cost position amongst copper mines in South America. Due to the similarities between Copper Mountain and Constancia, we see a tremendous opportunity to apply our team's core technical and operating capabilities and our high efficiency framework to the Copper Mountain Mine.
We estimate around $30 million of annual efficiencies and synergies. This includes $10 million of annual corporate shared synergies and tax attributes. We expect to achieve an estimated $20 million per year in operating cost improvements over time through the application of our framework, improving productivity, reducing costs, and achieving consistent and stable operations at the Copper Mountain Mine. This further builds on the great work done by the team at site and recent positive momentum experience at the mine. Combined with Copper Mountain's leading technological and ESG practices, the operation will be positioned as an industry leader. We also believe we'll benefit from sharing services across our Canadian assets. We've been pleased with the positive feedback we've received from shareholders of Hudbay and Copper Mountain, as this transaction offers significant value for both sets of shareholders. Moving to slide eight.
We'll have a strong presence across tier-one jurisdictions in the Americas with operating and development assets in Canada, the United States, and Peru. We'll also have one of the best organic growth pipelines among our peer group, consisting of brownfield expansions and greenfield development and exploration opportunities. Our improved leverage profile and expanded operations as a result of the Copper Mountain combination will allow us to more efficiently allocate capital across our business to the highest risk-adjusted return projects to develop a steady stream of ongoing expansion opportunities.
As we think about the combined portfolio, we expect to immediately pursue high return and short payback initiatives, such as the completion of the first phase of the Stall Mill Recovery Improvement Program in Manitoba. We will be able to pursue low risk, minimal capital brownfield expansions such as throughput optimization at the Copper Mountain mine and further store recovery improvement programs. Looking at our brownfield expansion opportunities, we're particularly excited about the deposits near Constancia. The first, Maria Reina, sits on a line that joins Las Bambas and Tintaya, and has a radiometric footprint that is not dissimilar to these mines in scale. Vale drilled 11 holes on the property over a decade ago, which all intersected copper mineralization starting at surface, including 160 meters of over 1% copper equivalent.
The second, the Caballito mine, previously operated by Mitsui until the early 1990s, has samples indicating the presence of high-grade copper. There is also a waste rock pile that is believed to have economic mineralization, given that the historical mine's cut-off grade was more than one and a half % copper. Enhancing our brownfield expansions will position the core business for future transformational initiatives such as our Copper World project and better positions us for the next wave of value-creating consolidation in the copper space. Pre-feasibility activities for the private land phase one of the Copper World project are well advanced, and a pre-feasibility study is expected to be released in mid-2023. Clearing and grading work to prepare for the future development of Copper World continues at site, including the construction of roads and other facilities.
We commenced the permitting process for Copper World with the approval of a Mined Land Reclamation Plan back in May 2022. This approval by the Arizona State Mine Inspector was challenged in state court. The challenge was dismissed in May 2023 as having no basis. We continue to expect to receive the two outstanding state permits in 2023, the Aquifer Protection Permit and an Air Quality Permit. We are encouraged by the continued positive permitting outcomes for our Copper World project. Upon receipt of these state-level permits, we will evaluate a bulk sample program to continue to de-risk the project by testing grade continuity, variable cut-off effectiveness, and metallurgical strategies.
We also intend to initiate a minority joint venture partner process following receipt of permits, which will allow a potential joint venture partner to participate in the funding of definitive feasibility study activities in 2024, as well as in the final project design for Copper World. The Mason project is a large greenfield copper deposit located in the historic Yerington district of Nevada and is one of the largest undeveloped copper porphyry deposits in North America. We completed a PEA in 2021, which demonstrated robust project economics from a 27-year mine life operation. We acquired nearby properties hosting several historical underground copper mines that were in production in the early 1900s. There is an opportunity to further enhance the project economics through exploration for higher-grade satellite deposits on our prospective land package near Mason.
We expect to test these high-grade targets with an initial drill program planned for late 2023. To slide nine for an update on our 2023 exploration initiatives. Peru exploration activities recommenced with a focus on drill permitting for our highly prospective satellite properties while evaluating the potential for reserve expansion at Constancia and Pampacancha through future mining phases. We are completing a limited drill program and technical evaluations at the Constancia deposit to confirm the economic viability of adding an additional mining phase to the current mine plan that would convert a portion of the mineral resources to mineral reserves. We're also completing a drill program at the Pampacancha deposit to test mineral reserve extension potential. The results from these drill programs and technical and economic evaluations are expected to be incorporated in the next annual mineral reserve and resource update.
As mentioned earlier, the past-producing Caballito property and the highly prospective Maria Reina property are located in close proximity to the Constancia processing facility. We commenced early exploration activities at these sites after completing a surface rights exploration agreement with the community last year. Surface investigation activities, together with baseline environmental and archaeological activities necessary to support drill permit applications, have been completed. Drill permit applications are expected to be submitted in the coming months. In Manitoba, our Snow Lake exploration activities are prioritizing step-out drilling for new discoveries to support future growth in annual production and mine life extension. Our 2023 winter exploration program intersected many occurrences of disseminated copper sulfides over 2 km down plunge, indicating the proximity of copper-gold feeder zones similar to the deeper lenses at Lalor.
The program included four drill rigs testing the down plunge gold and copper extensions of the Lalor deposit in the first step out drilling in the deeper zones at Lalor since the initial discovery in 2009. While assays are still pending, we will continue to analyze these results and perform additional geophysics to refine the next phase of drilling in 2024. One additional drill rig in Snow Lake is testing a geophysical anomaly located within 400 meters of the existing Lalor underground infrastructure. Four drill holes were completed during the winter drill program, and assay results from the base metal and copper gold mineralized intercepts identified from core logging are pending. To close off, I'd like to reiterate our commitment to operate in a manner that demonstrates our focus on the environment, and we are proud of our already low carbon footprint.
As seen on slide 10, our climate change initiatives include committing to achieve net zero greenhouse gas emissions by 2050, with an interim target of a 50% reduction in Scope 1 and Scope 2 emissions by 2030. We've identified multiple opportunities through our emissions reduction roadmap to achieve further reductions across the business. In the first quarter of 2023, we completed two initiatives that will lead to further carbon footprint reductions. First, we signed a new 10-year power purchase agreement with ENGIE Energía Perú for access to a 100% renewable energy supply for our Constancia operations starting in January 2026.
The move to this new provider is expected to reduce total current company-wide Scope 1 and Scope 2 greenhouse gas emissions by 40% during the life of the contract, positioning the company well to achieve our 2030 climate change target of 50% emission reductions. The second will be to integrate Copper Mountain's leading climate change initiatives into Hudbay's framework to further improve our carbon footprint. The Copper Mountain mine has the potential to be the lowest emitting open pit copper mine in the world by 2035 through the implementation of several net zero carbon initiatives. This includes their recent successful commissioning of electric trolley assist haulage. They're also actively testing and researching renewable diesel, hydrogen, battery, and fuel cell technology for haulage. We'll have the ability to apply Copper Mountain expertise in carbon reduction initiatives to the Constancia mine and the Copper World project.
I'll conclude the presentation on slide 11. 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. Hudbay is uniquely positioned to benefit from the strong outlook for copper, with attractive copper production growth and significant long-term optionality for investors through our leading organic growth pipeline. With the addition of the Copper Mountain mine, we will be well-positioned to re-rate towards our larger base metal peers with enhanced production, trading liquidity, and scale. Hudbay offers investors the highest near-term free cash flow yields, coupled with significant long-term upside through our leading copper mineral resource base. With that, we're pleased to take your questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. Our first question comes from Orest Wowkodaw of Scotiabank. Please go ahead.
Hi, good morning. Peter, I'm curious on your earlier comments about diluting the exposure to Peru through the Copper Mountain acquisition. I think you mentioned a number of your non-Peru exposure now would be about 55% of NAV. When I think forward here in terms of the next couple of years, certainly, probably the biggest upside to our NAV estimates could be the exploration potential around Constancia with Maria Reina and Caballito. Wouldn't that actually sort of reverse the Copper Mountain advantage? I'm just curious if you, if you have a target in mind in terms of where you'd like to get that Peru exposure, knowing that you're gonna have a potential upside with the exploration in Peru.
Morning, Orest. Thank you for that thoughtful question. You're absolutely right. We are reducing exposure through increasing exposure in North America. That doesn't mean that we like Peru any less. Frankly, I think you've heard me say many times before that I believed in Peru for the last 2.5 decades. Peru tends to go through these ups and downs and cycles in social unrest or whatever you wanna call it. I am convinced that Peru is a good place to be. Constancia has, I believe, one of the best operating workforces in a copper mine in the world, and it's something that we need to lever going forward. You're correct.
Once we establish exactly what it is that we have at Maria Reina and Caballito, it certainly does have the potential to change that distribution. Also remember that at some point, we will develop the Copper World project, which sort of tends to adjust that further. We're not targeting any residual distribution. We just think that the current initiative with Copper World raises the company to a better place. I am convinced that Caballito and Maria Reina will be operations in the near term that will significantly improve Hudbay's access to copper and production profile. Since you asked the question, I'd probably take the opportunity to say that we've been really happy with the turn of events in Peru.
It looks like President Boluarte is doing a really good job of stabilizing the environment. It looks like she has appointed a qualified cabinet. It looks like we are enjoying a period of I would say relative quiet. I expect this to proceed for some time. We certainly are having no issues with proceeding with the bureaucracy, with our initiatives towards getting our exploration permits for Caballito and Maria Reina. The quick answer is, yes, we are readjusting our distribution geographically in the short term, but over the long term, together with Maria Reina and Caballito, as well as Copper World, we sort of expect to maintain roughly the same distribution.
Thanks, Peter. As a quick follow-up, do you see more opportunities like Copper Mountain out there, if that potentially Hudbay could take advantage of?
You know, we always continue to look for those opportunities, Orest. Like, we've always said that they're hard to come by because of our pretty firm and disciplined approach to acquisitions. If there is something out there, we certainly would be interested in it, but priority number one right now is to combine Copper World into the portfolio, and then we'll start thinking Copper Mountain into the portfolio, and then we'll think about what might be next.
Thank you very much.
Once again, if you have a question, please press star then one. Our next question comes from Ralph Profiti of Eight Capital. Please go ahead.
Thanks, operator. Thanks for taking my question. Peter, I want to come back to the 100% renewables at Constancia. Just wondering what exactly are those renewable sources starting in 2026? Is this capacity currently installed? Maybe give us a little bit of flavor on how much power currently accounts for the Constancia cost structure, and whether or not, you know, we can see some potential savings there.
Morning, Ralph. Thanks for that question. As far as the exactly how ENGIE's energy assets are configured, I don't know the answer to that offhand. It certainly. I mean, we negotiated this agreement over a long period of time using a highly competitive bidding process. The team in Peru assures me that this is, you know, we will have a 100% renewable source of electricity, but my understanding is that it is almost all hydro and wind.
Okay.
Ralph, it's Eugene Lei here. If I could add, it's, we get green certificates for this energy, and the contract starts in January 2026. I think it's 720 gigawatt hours a year of these Renewable Energy Certificates that we consume about 710. slightly an excess is what the contract is for, and it begins in 2026, as I mentioned.
Okay, great. Yep, that's helpful for context. Appreciate that. If I can ask a follow-up. Peter, it's been a while since we've heard about the tailings reprocessing opportunity, and I understand that you're looking at, you know, some metallurgical testing. Can you talk a little bit about the differing metallurgical techniques and technologies that you're looking at? Sort of where does that stand on sort of bringing that forward and perhaps, you know, seeing some value there, you know, as you're sort of thinking about and prioritizing perhaps other bigger, larger scale projects?
I'll have the first kick of the, at the answer of that, Ralph, and then I'll ask Andre to maybe provide a little bit more color. We, you know, we continue to conduct metallurgical test programs and evaluate metallurgical technologies to assess the processing viability of the tails, which of course, if positive, will lead to a future mineral resource estimate. That said, we've also identified the opportunity to reprocess the Anderson tailings in Snow Lake, given the significant amount of gold that's been deposited there over many, many decades, and also given the close proximity to existing producing infrastructure at Stall and New Britannia, and the fact that production from Snow Lake is unstreamed. We may also consider tailings reprocessing opportunities in Snow Lake as future phases of our Stall mill recovery projects permit.
With respect to exactly what you asked with respect to technologies in Flin Flon, perhaps Andre can provide a little bit of color there.
Sure. Thanks for that. I'll start with the easier one and less complicated one in Snow Lake. We're looking at it as well in the Snow Lake operation. The technology that we're looking at is very similar to what we have at New Britannia, with some slight modifications to deal with some base metals that are in the tails. Our historical tailings in Snow Lake have a mixture of copper, zinc, and gold at lower recoveries than we would like today.
What we've done in Snow Lake was put in place a cyanide process and the process that we would have to do to treat the tails would be managing with something similar to what they call, like, a Merrill-Crowe type circuit, managing the base metals first before extracting the gold. In Flin Flon, it's a little different, it has both similar copper and zinc and gold. The zinc is much finer grain, the process that we're looking at right now is how to extract the elemental sulfur from the tails. There's a variety of metallurgical technologies that we're testing right now, it's still very early days.
Understood. Thanks for those answers. I appreciate it. Thank you.
You're welcome.
Our next question comes from Farooq Hamed of Raymond James. Please go ahead.
Hi, good morning. I was just looking at a couple of the corporate actions that you've taken in the quarter, specifically pushing back your gold prepay payments and then the hedging of some of your copper in the second half of the year. It looks like you're protecting your cash flows in the second half of the year, and I was just wondering if you could give some insight as to why you're taking these extraordinary measures to either protect or marshal your cash in the back half of the year. Is there something in the plan kind of for the back half of the year that maybe is not as well understood?
Hi, Farooq. It's Eugene here. Thanks for the question. They are really measures taken to ensure that we have strong free cash flow generation throughout the year. Maybe the first measure was the deferral of the gold prepay. We did that in February, and we deferred eight monthly payments of gold. That was in a period where, you know, there was some Peru uncertainty, as Peter highlighted, and we wanted to ensure that we got access to the, you know, a monthly cash flow basis. Obviously having the gold price move up since we've made that deferral has helped the cost of it.
The cost of it was roughly 3%, which is a lot cheaper than we'll call it a normalized cost of capital. With the gold price increase that we've experienced, the cost of that deferral is actually close to zero at the moment. I think it was a sort of effective way of cash flow management for the year. As we indicated with our guidance, the production of copper for Peru is back-end weighted. It's what? 60% in the second half. As we, you know, look forward to this year, much of that production is gonna be in the second half.
Given the volatility in the markets we've seen year to date already, we want to make sure that, you know, that we could be opportunistic to ensure that we were gonna get that free cash flow at the end of the year. I think you'll see a floor of $3.95 and a ceiling of $4.28 for 10% of that production. It's done on a monthly basis. That just ensures some smoothing of prices and again, locks in some certainty of. I think that $3.90 floor is probably the highest floor that you'll see in the cost of collars that any of our peers have done.
I think it was just an opportunity for us to manage through what we expect to be a strong cash flow generation period for the company so that we meet our de-leveraging targets that we outlined earlier this year.
Thanks for that, Eugene. I guess I'm just wondering, I mean, like you said, the back half of the year is supposed to be stronger. you know, you're supposed to have kind of better operating performance the back half of the year, so you'd think you'd naturally have better cash flows, you know, to begin with. I don't think that there's any major capital program in the back half of the year that I can think of. I'm just trying to understand why you're, you know, wanting to protect those cash flows. Is there? You know, I mean, most operators, when they're just operating normally, they won't put in a hedge program like that.
I'm just trying to understand, like, what specifically was the reason that you know, identified the back half of the year as something that you wanted to protect the cash flows?
It wasn't, it wasn't any capital program that we expect to embark on. I think we, as you saw with our guidance, annual guidance, we're reducing discretionary spending this year to try to generate free cash flow, and I think it's with those targets to make sure that we come out on the back of the year with a lower net debt EBITDA and a stronger cash balance as we go into 2024 and any decisions that we have to make with respect to Copper World in 25 and beyond. Just ensuring that we get that. Instead of, you know, maybe the back half of the year if prices are weaker that we lose out on that cash flow generation.
Just laying, layering a little bit of protection for us to ensure strong free cash flow generation. No spending significant increase that we have not planned.
Okay, thanks. That's helpful.
Once again, if you have a question, please press star then one. 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. Thank you everyone for joining us today. If you have any further questions, please feel free to reach out to our investor relations team. Thank you. Have a great day.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.