Earnings Call: Q2 2021

Jul 29, 2021

Good day and thank you for standing by. Welcome to the Lundin Mining Second Quarter 2021 Results Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Marie Inkster, President and CEO. Thank you. Please go ahead. Thank you, operator. Before we begin, Thank you, operator, and thank you, everyone, for I would like to draw your attention to the cautionary statements on Slide 2 as we will be making President and Chief Financial Officer and Peter Richardson, our Senior Vice President and Chief Operating Officer. The photo on this slide is our Eagle Planning Engineer, Matthew Younger, inspecting an impressive high grade phase on one of the cut and fill levels to be released. On Slide 4, we published our 2020 sustainability report earlier this month. As many of our long term shareholders know, Lundy Mining has been reporting on our sustainability performance and stand alone documents since 2010. In this year's report, we outlined many of our sustainable improvements in safety, environment and social performance. In particular, we highlight our proactive efforts in monitoring the evolving COVID-nineteen pandemic, putting appropriate and protective measures in place while working closely with communities to identify their needs and provide support. Our best ever total recordable injury frequency rate of 0.55, our formal adoption of the global industry standard on tailings management, And we had no level 3 or above environmental incidents and a 13% decrease in level 2 incidents. In 2020, we initiated a cross functional and collaborative process to further advance our sustainability strategy and performance. This includes a multidisciplinary sustainability working group, an executive steering committee and a formal governance structure. Through these, we will continue to define, integrate and embed sustainability pillars, key themes, performance indicators and long term targets. I encourage those interested in the additional detail and more information on our approach and performance to read the report. And as always, please reach out to us with any questions. The end of the call, I'll now turn the call over to Jinhee to run through the summary results of the quarter. Thank you, Marie. During the Q2, our operations produced nearly 110,000 tons of base metals and approximately 41,000 ounces of gold. This is a quarter over quarter improvement driven by better performance for many of our mines. We sold over 103,000 tonnes of payable based metals and 39,000 ounces of payable gold, generating revenue of over $870,000,000 As the market price for the metals we produced increased in 2nd quarter, there was a positive pricing adjustment again this quarter. The positive price impact on revenue was From the settlement of prior period sales was nearly $50,000,000 A large portion of these settlements was attributable to copper. Copper generated 72% of the quarter's revenue, slightly greater than the 70% of the Q1 and on a percentage basis in line with the same quarter of last year. Nickel contributed 9%, in line with the 10% of the first quarter and up from the 6% in the period last year on increasing production and prices. We remain predominantly leveraged to copper and well diversified geographically. Slide 6 presents a summary of the 2nd quarter results compared to the same period last year. We benefited from significantly higher base metal prices this quarter compared to the Q2 of last year. We realized a copper price of $4.58 per To a lesser extent, we benefited from positive prior period adjustments for gold and zinc. Details can be found in our MD and A. 2nd quarter revenue of over $870,000,000 was nearly 65% above that of the same quarter last year and a nearly 30% increase from the Q1 of this year. In the first half of this year, our consolidated revenue was over $1,500,000,000 It is important to point out that at quarter end, nearly 86,400 tonnes of payable copper remained provisionally priced at $4.25 per This is a larger than typical amount remaining provisionally priced and is a result of the timing of shipments at the end of last quarter. Approximately 30,000 tonnes were settled in July. Attributable net earnings from operations were $0.33 per share and adjusted earnings were $0.31 per crude base metal prices quarter over quarter, we generated adjusted EBITDA of over $480,000,000 a nearly 110% increase of the same quarter last this year, we generated over $835,000,000 of adjusted EBITDA in the first half of twenty twenty one. Cash flow from operations was nearly $420,000,000 modestly impacted by a build in working capital. Adjusted operating cash flow before changes in non cash working capital items was over $430,000,000 or $0.58 per share. We've introduced a non GAAP free cash flow metric this quarter, and details are presented in our MD and A. In the Q2, we generated nearly $300,000,000 of free cash flow, a record for the company. In the first half of this year, The company generated nearly $355,000,000 of free cash flow. Lundin Mining is in a very strong financial position with cash and equivalents approaching $300,000,000 at quarter end and a net cash position of over $150,000,000 The company's revolving credit facility was fully repaid by quarter end. The company's financial position has further improved since the end of the quarter. Net cash is now roughly $190,000,000 with cash and equivalents of $250,000,000 following repayment of approximately $80,000,000 of Candelaria Term Loan. I will now turn the call back to Marie. Thank you, Jun Hee. Moving to Slide 7. We have adopted a dividend framework to guide the direct returns to Supported by this framework aimed at returning a minimum target of 40% of available cash flow through the combination of the sustainable and core quarterly base dividend supplemented by a variable performance dividend declared and paid semiannually. Available cash flow is determined as operating cash flow after capital Investments, contingent payments and distributions to our partners. The table on this slide outlines the calculation. Our Board of Directors has declared a regular quarterly dividend of CAD 0.09 per share or CAD 0.36 per share on an annualized basis, And this represents an increase of 50% compared to the most recent regular dividend paid in June of this year and 125% increase over the dividend paid at the end of last year. The Board has also declared an inaugural semi annual performance dividend of CAD0.09 per share for first half of twenty twenty one. In total, CAD0.18 per share of dividends were for the quarter, which annualizes to CAD 0.54 per share and a total dividend yield of approximately 5%. I'll now turn the call to Peter to discuss our operations. Thank you, Marie. Starting with Candelaria on Slide 8. Candelaria performed in line with plan during the Q2. It produced over 36,000 tons of copper and 24,000 ounces of gold at a cash cost of $1.52 per pound copper, All improved quarter over quarter. Operating costs were above plan impacted by extra mine and mill maintenance. So on a cash cost basis were offset by higher than forecast magnetite and precious metal byproduct credits. Following the 2021 production guidance revisions announced on June 21, we have reintroduced full year cash cost guidance At $1.55 per pound of copper, the increase over the prior guidance primarily reflects the lowering of copper and by product gold production. Full year capital expenditure guidance has been reiterated at US345 $1,000,000 with over US150 $1,000,000 of this Moving to Slide 9, as announced in our June 21st release, We have adjusted the near term mining sequence in an area of Phase 10 of the open pit for the second half of this year to manage production challenges in our localized area. As can be seen from this photo, while nominal in volume, small movements have the potential to impact activities on lower levels, levels 144, 128 and 112. The photo shows several of the measures and actions we have taken to manage risks in this localized The photo is of current mining on July 18. To reduce the risk, we have implemented new blasting procedures, Have made design changes to increase bench widths and step outs as can be seen on the 224, 192 and 160 levels, Have increased equipment in the area to improve productivity as we work through the area, further enhanced monitoring process, including time delayed response, Prism and Inthar Satellite Imagery, adding further technical capabilities, including senior technical mining personnel and enhancing external review and auditing process. With these additional measures, we are confident in the management of the production challenges while mining to this localized area I'll be happy to take any questions during the Q and A. I'll turn the call back to Marie to discuss Candelaria's 2023 Thanks, Peter. Moving now to Slide 10. We are currently preparing and optimizing our life of mine plans for all of our operations as part of our annual planning process. In reviewing the plant and mine performance for the 1st 6 months of this year, The preliminary plans for Candelaria are considering a forecast annual processing rate of approximately 28,000,000 tons for the complex, utilizing the existing infrastructure and allowing for a mine to mill copper grade dilution of 5% to 8% for 20222023. This compares to the most recent 40 three-1 101 technical report, which assumes annual throughput of approximately 30,000,000 tons in each year and does not incorporate an allowance for normal dilution. While further work is required to complete and confirm the plans, on preliminary review, production forecast for Alternative plans, trade off studies and further revisions are being evaluated to improve future years' production. These include Adding and debottlenecking our pebble crushing and grinding capacities, improved grade control, increased contribution to mill feed from our underground mines and an earlier and increased contribution of Phase 11 ore. We aim to finalize our life of mine plans over the next few months and it is approved by the company's Board in November. As per our normal course, a 3 year production outlook along with 1 year cash cost and capital expenditure guidance All mines will be provided at that time. Peter and I will be happy to take any questions and elaborate during Q and A. I'll turn the call back to Peter to continue the discussion of the operations. Thank you, Marie. Moving to Chapada on Slide 11. 2nd quarter production totaled over 11,200 tons of copper and 17,000 ounces of gold. This represents improvement of nearly 15% 30% respectively compared to the Q1. The operation performed well and set a new monthly mill to put record in May, processing 2,300,000 tonnes. Metal recoveries improved quarter over quarter and were on plan for copper and better for gold, 48000 to 53000 tonnes previously, the gold production guidance range has been tightened and lowered to 73000 to 76,000 ounces from 75,000 to 80,000 ounces previously on re sequencing of ore sources for the second half. Full year cash cost guidance of $1.10 per pound of copper has been reiterated. Our gold price assumption for the second half of the year $100 per ounce to $1700 while our Brazilian real assumption remains at $5.10 Full year capital expenditure guidance remains at $65,000,000, so we have now anticipated lower capitalized stripping expenditures to be offset by near mine land acquisitions. On the exploration front, we continue the excellent progress achieved in the Q1. We completed nearly 18,500 meters of drilling in Q2, bringing the first half total to over 29,000 meters and on track to complete the budget 60,000 meters for the year. Dollars 9,000,000 has been expended in the first half of the $16,000,000 full year execution budget. Slide 12 is an aerial of Chapada with several exploration drilling highlights from assays received back during the Q2. On the slide, you can see the surface expression of last year's measured and indicated mineral resource, which includes the proven and probable mineral reserves at a subset. As you also can see, the inferred mineral resource and other areas we have determined to be highly prospective prior to for near mine exploration. We are in the late stages of preparation of our annual mineral resource and reserve statement across our portfolio, which we aim to announce early September. As in prior years, the R and R statements will have an effective date of June 30, 2021. It is important to mention that to prepare the geological model For this year's update, Chapada's assay cut off date was in the Q1. With this cut off and the asset delays we have experienced in the first half, Unfortunately, much of the recent drilling success from early this year will not be incorporated in this year's update that we'll be announcing at roughly a month's time. At Chapada, our primary focus remains on near mine exploration to better understand and define the mineral resource potential and inform our ongoing expansion study. Moving to Nevis Korvo on Slide 13. 1st quarter production totaled over 10,300 tonnes of copper, 16,000 the Q1, in line with plan on improved feed grades and increased mill throughput, zinc production increased over 10% quarter over quarter, However, was below plant impacted by lower than plant and recently grade. Mining was resequenced to lower grade area to make volume with pest from Great Lomador orebody to complete rehabilitation work. The full year copper production range has been tightened to 36,000 to 38,000 tonnes from 35,000 to 40,000 tons, while zinc production guidance has been lowered to 67,000 to 70,000 tons From 70,000 to 75,000 tons. Operation costs in aggregate and on per tonne mill unit basis were better than planned in the quarter Per pound of copper from 20.20 1st half performance. This also considers a revised zinc byproduct price assumption of $1.25 per pound For the second half of the year from $1.50 previously and a second half year over to U. S. Dollar exchange rate of 1.25. Full year sustaining capital guidance of $65,000,000 has been reiterated with $20,000,000 having been capitalized in the first half. Moving to the Zinc Expansion Project. Consistent with our previous guidance and time out, construction is to be substantially completed at year end. Pre production capital $430,000,000 remains unchanged as of our 2021 capital expenditure guidance of $70,000,000 With approximately $30,000,000 remaining to be spent in early 2022, primarily reflecting timing of claims. Slide 14 shows recent progress on the underground aspects of the project. In the Q2, we commenced construction on the reticulation system, Defying the shaft shutdown with prefabrication and pre assembly works now underway. We started some gallery and pumping station final supports and initiated construction on the dumping base. Over the coming months, underground work is to focus on the completion of the electrical rooms with handover completion of the shaft upgrade finishing mechanical installation of the material handling system on the hoisting level and installation of Electrical on the crushing level and installation of the service water piping system. Moving to Slide 15, These pictures show some of the 2nd quarter progress on surface. During the quarter, construction began on the expansion of the pace fill infrastructure, Construction is well positioned to be substantially completed by year end and ramped up over the course of 2022. On Slide 16, Zincrewind continued to perform very well. In the 2nd quarter, production totaled nearly 18,200 tonnes of zinc, 650 tons of copper and 5,100 tons of lead at a cash cost of $0.42 per pound zinc. Zinc and lead metal production exceeded plan primarily on better than cathode mill feed grades. Full year zinc production guidance has been tightened with the bottom of the range revised upwards to 73,000 to 76,000 tons from 71,000 to 76 1,000 tonnes previously, operating costs on a per tonne mill unit basis were modestly above plan, both on a sec and a U. S. Dollar basis. However, the 2nd quarter cash costs were better than planned on higher byproduct copper prices and volumes. Full year cash cost guidance of 0.6 $0.05 has been reiterated as has the sustaining capital guidance of US15 $1,000,000 Exploration efforts continue with a focus on the extension of Dolby and the areas between Burkland and Negriva ore bodies. Over 5,600 meters of exploration drilling completed in the 2nd quarter, bringing the first half total to approximately 12,000 meters. In 2021, we plan to complete 27,000 meters of drilling planned as a part of $6,000,000 program. The chart on this slide presents the evolution of the zinc and copper mineral resources and reserves over the last 10 years. The primary message being that we are confident we will be able to continue to extend the mine life of Zincruent beyond what is presently defined by the approximate 9 to 10 years of mineral reserves. Solvay can be seen begin to contribute to the zinc mineral resource initially in 2018. We aim to have it reflected in the mineral reserves And fully expected to continue the tradition of continuous production since 18/57 beyond the next 10 years. Lastly, on the operation front, on Slide 17, Eagle had a strong quarter yet again. Bill performance was as planned, while the mine delivered greater nickel and copper grades than forecast. As a result, 2nd quarter production was nearly 4,800 tonnes of nickel and over 5,200 tonnes of copper at a cash cost of negative $2.01 per pound nickel. With minimum capital expenditure of US5 $1,000,000, Eagle generated over US90 $1,000,000 of cash in the quarter. On a strong first half performance, Eagle's nickel and copper production guidance have been both narrowed with the midpoint raise to 18,000 to 20,000 tons 17,000 to 20,000 tonnes previously. 2021 cash cost guidance has been improved for a second time this year We are now forecasting $4.30 per pound of copper for the remaining of the year from $3.75 previously. With the remaining life of mine production profile, current metal prices levels and lower annual CapEx, Eagle is well positioned to generate significant free cash flow in Beyond what is presently in the mine plan, we are now undertaking technical and economic studies that is lower than that of Eagle and Eagle Leaf ore bodies. However, given the proximity to the existing ramp infrastructure has the potential to be economically mined At current spot nickel and copper prices, this area will not be included in the upcoming 2021 minuteeral reserve and resource estimate, though provide significant June, we expect to extend the mine life as current nickel and copper prices prevail. With that, I'll turn back the call to Marie to sum up. Thanks, Peter. On Slide 18, we have a summary of our current guidance. As discussed in the operational section, the annual production guidance ranges have been tightened for the operations. Candelaria guidance was updated in late June. Chapada Gold and Nevescorvo Zinc production saw modest reductions based largely on forecast mill feed grades while other metals were tightened within their previous ranges. Full year cash cost guidance for Eagle and Neves Corvo have been improved given year to date performance and forecast for continued favorable byproduct metal prices. Candelaria cash cost guidance has been reintroduced after the previously disclosed near term mine sequence changes in Phase 10 of the open pit for the second half of the year. Cash cost guidance for Chapada and Zinkgruvan is unchanged. Full year exploration expenditure guidance remains at $40,000,000 We are well to achieve the targeted 140,000 meters of planned exploration drilling this year. Lastly, on Slide 19, The investments we have made over the past several years and are completing now at Neves Corvo have positioned Lundin Mining well to benefit from the current commodity price environment At the end of the quarter, particularly as our South American mines continued to address evolving challenges of COVID-nineteen, we were able to take advantage of the current price environment and generate a quarterly record of nearly $300,000,000 of free cash flow for our shareholders. We generated nearly $355,000,000 of free cash flow in the first at the 6 months of this year. We have adopted a dividend framework to guide direct returns to shareholders, while enabling the company to maintain its best in class balance sheet and strong financial position for future growth. Our total dividend is supported by this framework aimed at returning a minimum target of 40% of available cash flow Through the combination of our regular base dividend, which is sustainable throughout the cycle and can be progressively increased as our asset base improves and grows and our new variable performance dividend. We will continue with our objective to create value by investing in low risk, high return opportunities in our own assets as we remain disciplined in our approach to unlocking accretive external opportunities. And with that, operator, I would like to open the lines for questions. Thank you, speakers. Participants, we will now begin the question and answer First questions from the line of Orest Wowkodaw of Scotiabank. Your line is now open. Hi, good morning. Given the magnitude of the guidance cuts in Candelaria in 2022, 2023, can you please provide more color on what's driving I'm just really confused because my understanding was that you were mining slower through the pulp zone in H2 'twenty one, Which would have pushed some of that into first half of twenty twenty two, but I really don't understand the magnitude of the cuts, especially for 2023. Any color here, I think, would be very appreciated. Good morning, Orest. Yes, I think we're pretty clear in our release about what's driving it. The 28,000,000 tons per annum versus the 30,000,000 tons random, there's an impact to that. And really, it's 6 months now that we've been running the CMOP at full rates. And we are still having a lot of pebbles in the circuit and we're not achieving the full throughputs that we felt that we would achieve and building that into our plan. So we need to do some work to address that on additional crushing and grinding. In addition, we are seeing some grade dilution in the short term plan and so we're accounting for that. So those are the 2 things really that are driving it. Peter, I don't know, can you expand on that a little more? No, it's correct as you said, Marie. The lower efficiency of the Timah project that we expected 4,000 tons trough per day, for 6 months, we are not seeing that. So that's the reason that we've cut back from At 30,000,000 tons annually, the 28,000,000 tons annually, we have a number of investigations ongoing to recover some of that. So we will be making decisions later on this year to be able to increase throughput and get Yes, as we planned. And then also the discrepancy between the short term model and what we're seeing in the mill, That's something that we're constantly working on and we have not initiated to improve that. So we don't see that. Now are these issues limited to 2022 or 2023? Or should we be also taking a hatchet to what's in the mine plan For 2024 and 2025, I mean the technical report calls for production copper production in the order of over 190,000 tons in those years. It sounds like what I'm hearing is that these are more structural issues that are going to impact life of mine, not just 2022, 2023. Is that correct in my thinking? Well, I think you're being a bit dramatic, Orest, saying that you're taking a hatchet to the plan. It's still a good plan and we are working Our opportunities to improve the throughput, there's also opportunities. Right now, we could improve some of the underground to improve the grade, we're permit constrained. We actually couldn't move more tons in the underground. So there are a number of things that we're looking at. In November, we will give a 3 year guidance and give some future trending then. So incorporating those plans in the future years, but I think saying you're going to take a hatchet Next question is from the line of Jackie Przybylowski of BMO Capital Markets. Your line is now open. On the new dividend policy, it's great to see you guys Adding returns to shareholders there. Can you maybe talk a little bit about why you chose to use the dividend special dividend the framework, and so what you're thinking on that versus the buyback that you already have in place is? And I guess as a follow-up question, how should we think about that buyback? Should we sort of assume, I guess, at this point that You're not planning to make use of that this year? We are focusing on the dividend as a main source of the returns to shareholders at this time and we do see that with our production we have really good production, good cash costs this end, we'll be generating very good free cash flows. And so with this policy, what it allows us to do is to still retain some cash for growth opportunities, but depending on how we see those playing out To be able to distribute a significant amount of free cash flows, we set a minimum of 40%, but we'll look at that But it will be a minimum of 40%. So on the buyback, we'll probably continue to Do that, but not with a focus, probably where we see opportunistic opportunities to use it, but it won't be a focus for us. It still is in place, but I think most people would recognize that unless we're going to put 100 1,000,000 into substantial buyback program, it's really not going to move the needle. So right now, we're focusing on the dividends as the return mechanism. Next question is from the line of Ioannis Mazoulis of Morgan Stanley. Your line is now open. Good morning and thanks for the presentation. A couple of questions from me again on Candelaria, And I'll take them one at a time, if that's okay. So regarding the outer years beyond 2023, Is it fair to say that you will need to make good progress on those initiatives around additional crushing and grinding capacity as well as grade control initiatives to make sure you get close to The projected production numbers that were included in the technical report, is that a fair assessment of the situation? And if that's the case, Could you give us a sense of what sort of associated CapEx may be required here for those additional investments? Are we talking the low double digit $1,000,000 numbers or could it be something materially higher than that? Thank you. Yes. So, Johannes, on your first point, yes, I think it's fair to say that we will need to do some additional work On the crushing and grinding in order to see the full throughput that we would need to do the previous guidance and we are We have been studying those for a little while now and it's both crushing and grinding that we've been looking at as alternatives. And so depending on which one of those is chosen, the CapEx can be quite different. So of course, the crushing would be much cheaper than the grinding alternatives. But I think your order of magnitude on the crushing is fairly reasonable. Peter, anything to add? Yes. Just to clarify, so when we say crushing and grinding, it's the pebbles. So it's we're producing pebbles that we need Before returning them into the FAG grinding circuit. So we've been looking at different options, as Maria is saying, And how to improve both the capacity, but also the reliability of those systems. So depending on what alternative we choose, No, we're talking mid single digits or a little bit higher depending on chosen opportunities. And these we see some of these initiatives we can do within our permitting within our permits. Understood. That's helpful. Thank you. And second question Candelaria. When you lowered your production for 2021, that you took a cut both on copper and gold, But you didn't do so on the preliminary assessment for 2020, 23. So how should we think about gold production For those 2 years? Yes, that's because we haven't finished modeling out the gold that we're in the preliminary stage the end of our mine plan, we have been seeing some good improvements in recovery on gold. So It may not be of the order of magnitude, but we're still looking at that. We're still looking at the gold. Okay, understood. And last question from me on the new dividend policy. It's good to see that payout ratio gives a bit more visibility on what to What we expect from Lundin, but could you also comment on whether that changes your mindset at all around M and A? Is now the bar potentially high on potential deals? Or are you looking at shareholder returns and M and A The way you looked at in the past and we shouldn't really assume any changes to your M and A strategy. Thank you. Yes. So the dividend doesn't change our views on M and A. We'll still continue to look for opportunities, still focusing on copper. There aren't a lot of opportunities out there with the characteristics that we would typically look for in the quality that we would typically look for. So we're not seeing a lot right now and something that we'll have Some growth in the pipeline, because typically we haven't entered into those type of situations, but really with the lack of available work opportunities, if we Next question is from the line of Greg Barnes of TD Securities. Your line is now open. Yes. Thank you. Marie, Peter, I think I understand the crushing issues in the pebble generation. I get that. What I don't really understand is the copper grade dilution, which is pretty significant. I would have thought that would have been included in your block models already. I wonder where that's coming from? Yes, sure, Greg. Peter, do you want to address that? Yes. So the correlation between the block model and our long Sorry, our short term mine model is pretty good. Where we're seeing the discrepancies between the Short term mine model and what we're seeing in the mill. So that's where we're seeing the discrepancy. And we have a lot of initiatives Ongoing to try to resolve it, understand it and resolve it. So we've been doing a number of Sampling campaigns to check our sampling systems both in the mine, both open pit, underground and in the mills Using tracers and especially on the underground mines to track potential dilution, Doing visual checks in the open pit for dilution risk in contact zones and just working hard in the mill to make sure samples are up and running and The assay system as well. And we continue to do balances twice a month now to really keep Track on the discrepancy, so we can catch it early. So there's a lot of so that's the issue at the moment is The mine short term model and what we're seeing in the mill is not adding up. I'm surprised that just suddenly appeared out of nowhere. It just there must be something that's changed to drive that kind of Dilution? You're not sure it's coming from the underground or the open pit? No. We're investigating where it's coming from. We've seen dilution previously and then it's gone up and then it's gone a little bit down again. Now we're focused on minimizing this at the moment, right, because it's a little bit higher than normal for us. Okay. So do you think this is a short term issue rather than a longer term issue? We hope so. It is. And that's what we're doing. We're investigating, identifying it, and then we're going to be putting measures in place to make sure that it's minimized. Just on the Chapada expansion studies, you mentioned in the presentation that you weren't able to get all of the Would have liked to get into the upcoming reserve and resource update. Will you be able to get more of that information available for the upcoming I don't want to show whether it's a technical study or concept study about what you're planning to do at Chapada over the in terms of a potential expansion. Or is that being delayed by these asset delays? The expansion study is not delayed. We're pushing forward with that. What we wanted to highlight is that we are because we're behind in the assays by a significant amount here, It's not going to be incorporated into the R and R update, which we expect once we get those assays in to be able to have a Quite substantial increase in our R and R based on all the drilling that we're doing and the good success that we're having. But unfortunately, we don't have the results to be able to include it in the R and R update. But we are incorporating into the study Some of the concepts about where the future ore bodies and what grade profiles there might be. So it doesn't affect the timing of the study at all. Is there anything? No. As Mike said, they're all going in parallel. So, Marie, the study that we are going to get At the end of the year or early next year, what level is it going to be? Is this going to be concept pre feas? How are you positioning? Well, we're hoping to have a scoping by the end of the year. Okay. So what level of detail will that be at? What level of accuracy do you think? Is that more of a concept level or pre feasable? Yes. It's more scoping. So it's Somewhere between the conceptual and 3Ts. So it's almost a similar. Okay, fair enough. Thank you. Next question is from the line of Daniel Major of UBS. Your line is now open. Hi, there. A couple of questions. First one operationally, Chapada Recoveries, both copper and gold, have been comparatively low in the first half of the year. You've obviously reiterated the guidance, but can you give us a steer on the driver of that lower recovery rate relative to 2020 and what you're seeing or expecting in second half twenty twenty one and into twenty twenty two? So yes, it's really related to railroad mining and it follows the grades as well. And Peter, I don't know if we had out there an expectation, but we do expect that in different areas it does improve. So the second half of the year was improved on Great and recovery. Any additional color? It's great and recovery, where we mine it and how much stocks we put in. So when we add stock, the grade sorry, the recoveries go down. So it's a combination of grade and where it's mined. We We have a really good lithology model when it comes to the recovery. So we end up based on the different pits and stocks. That's what I said. Yes. It's great. I think it typically dips during the rainy season because there are days that we have to top mining, because of safety issues in the pit when it gets really wet. And so we do supplement some stocks quite a bit more in the wet months than we would in the dry months. Okay. So recovery should be getting back to levels more comparable to 2020 second half of this year and into next year in the 80s for copper. Is that fair? Yes, that's correct. Okay. Thanks. And yes, I mean, most of my other questions have been answered, but have you got any update, any comments on Your expectations around timelines for the Chilean mining tax debate and how your engagement It's been so far, have you sort of been presenting to the Senate, for example, in terms of the implications of the proposed changes? Yes. So we have been obviously following very closely and we were I'd like to present along with a number of other companies. So that should be relatively soon. We know that also Canadian ambassador was invited to present Wood Mackenzie's presentation. So we think once it Got up to the Senate, there was a certain level of sanity that came into the proceedings and they're really looking at the implications positive over the last couple of months, positive movement. We also saw, of course, with the presidential primaries that The candidates have really moved from the extremes on either right or left and they're more centrist. So we see that as a positive for the country and continue for probably a couple of months, we would be surprised to see any real action on that in the near term. Okay. So just to push on that second point, do you think it's more likely that we'll see a resolution from the Senate following the Or do you think we might see some update or clarity before the election? If I was a betting person, I'd probably put it after the election, but I couldn't rule out the fact that they would do something in the fall. From Canada, it's sometimes hard to have your finger on the pulse, but we do have good contacts that keep us informed on a regular basis. And I think it's something that will Go on for some time and of course the revenue of Codelco and the taxation revenue that's coming into the country now Also will be a big plus for the industry in showing the contribution in the existing sliding scale royalty. So I guess stay tuned and it definitely won't be anything like that which was originally introduced. Next question is from the line of Abhi Agarwal of Deutsche Bank. Your line is now open. Thank you. Good morning, all. Thanks a lot for the call. So I just have a quick clarification on Candelaria, please. So Just trying to understand the mechanics behind the production cost. So if I understand correctly, the lower throughput is an issue with the CMOP There is an issue with Dimel and the grade dilution. Is that a function of Phase 10? Or is that something different which you are observing right now? Yes. So correct on the mail, it's really the when you make improvements, you remove a bottleneck, But you often find that you create a new one somewhere else. And we are seeing that we need more upfront crushing and grinding for those pebbles. So you're correct on that one. On the grade dilution, it does vary from time to time. Peter, And that's you asked if it's Phase 10. That's what we're trying to pinpoint, where it's coming from. We're doing all these Studies and sampling, is it from the underground, is it from Phase 10 or is it from stocks? So it's too early to say where it's coming from. But it's a discrepancy between what we're delivering what we are modeling in the mine and what's being assayed in the mill. Okay, got it. So this is okay, so it's not possible to separate if it's a Phase 10 issue because the reason why I asked that question Because I know like given you moved to Phase XI and how sure can you be that these issues are not replicated with Phase But I guess it's slightly difficult to answer that question. Am I correct in thinking that? Yes, that's correct. One last question from my side, please. Is it possible for I appreciate it's early days, but is it possible for you to separate on What exactly is fixable with better operating practices and what you think is actually structural? Are you referring to CMOC to the pebbles? Yes. So basically at Candelaria, the grade Plus the mill, so what you think is fixable with better operating practices and what you think is potentially a structural issue here? So on the crushing and the pebble crushing and grinding, it's both. So we're looking at some modifications to the grinding sorry, to the crushing And also to potentially to the grinding circuit. But then there is also some operational upgrades that we need to practice To make sure that we utilize this circuit as much as possible, so we minimize the downtime. So it's a combination of both And we're working on. And then on the dilution, it is practices as far as we're aware. It's There's nothing structural in the block model. It's just a matter of controlling the dilution that comes into the mill. Next question is from the line of Lawson Winder of Bank of America. Your line is now open. Hello, good morning. Marie, you've recently expressed a 5 year copper equivalent production target of 600,000 tons. And I'm curious with the developments Recently at Candelaria, does this impact your confidence in that in holding that target out there at all? No, we'll continue to try to achieve that target. I think it's a reasonable target for us to set with some additional activity and we'll continue to try to achieve that. Now In terms of the upgrade to Chile, in the past you've said that basically you weren't Trusted in investing in Chile as the draft constitutional rewrite process was unfolding. Now given kind of the more urgent nature of probably trying to address some of these issues that have emerged, As you're thinking around that change, are you now willing to make some investments in Chile before that becomes clear? We have instituted a policy that we would make investments depending on the payback period. So if we saw something that had a minimal payback period, we would be willing to do that. But until there's clarity on the fiscal regime, something that would have a long payback period, We need more clarity on what that will be before we would dive in. Got you. Okay, that's great. Now you've highlighted some issues here at Candelaria that To me, it might impact the current reserve and resource estimate. And I'm just curious, will you have enough information, Particularly on the costs and even the grade control associated with this to Apply any updates to the reserve and reserve update in September 30. And if not, should we possibly watching For a Candelaria standalone reserve and resource update with the 3 year guide in November, December? No, the issues don't affect the resource and the reserve. There's no issue with the resource and the reserve. It is in the processing and mining practice. Okay, great. And then you also Peter, you mentioned that there might be some aspects Of the proposed optimizations that might not be within the permits, you said some of them were within the existing permits, which ones would not be within the existing permits? Well, if, for example, if we were to install A brand new larger crusher that's not describing the technical aspects of the permit. But modifications to the existing That is allowed. But if we were to build, say, a new crushing plant, That is something that would be outside the firm as we understand it. Yes. And we do have some additional permitting that's In process right now with our EIA 2,040, that does anticipate that we would do the underground expansion. So that would relieve some of the constraints on the underground, but there were probably another year in that process with IDIA. It's been very slowed from COVID. Okay. So crushing, is there any throughput work that you can do under the existing permit, for example, like yes. Yes. So we anything that we can do with the existing infrastructure that we have, so optimizing the crushing circuit that we have, the The pebble crushing circuit that we have, we're optimizing the pebble grinding circuit that we have. That is allowed within our permits. But constructing new Our facility needs to be permanent. Okay. That's great. That's very clear. And then there was some news in the last week or so just on the environmental authority and some issues related to Candelaria, Can you confirm that there is something going on there and just maybe elaborate on what that might be? Yes. So we have received notice from the SMA that they're looking at 6 charges A violation of our permit. So 3 of those they would consider pretty serious, 3 are the end of the quarter, we're assessing those and determining whether or not we will dispute them or whether it's the end of the year, we are going to go forward to agree and present a compliance plan. We don't see it as something that would Okay. Thanks guys for clarifying that. Yes. Similar to the current process that we were working through since 2013, it's a pretty long process if you do decide to dispute the charge. So we're working on the 2013. We recently had rulings in court that were in our favor on those And there's some similar ones in this one. So we'll have to discuss how we proceed with those, but we don't see it as something that's material to the operation. And of course, we have a lot of steps to make sure that we are in compliance with our permits. We understand it's very important to have the processes to ensure compliance and we continue to have a good track record on Compliance with all environmental permits at all operations. Thank you. At this time, there are no additional questions on queue. Okay, great. Thank you, and thank you everyone for your attention. And we will provide our next update with our Q3 results.