Good morning. My name is Adriana, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lundin Mining First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the call over to your host, Marie Inkster. Please go ahead.
Thank you, operator, and thank you, everyone, for joining Lundin Mining's First Quarter 2020 Results Call. As always, I would like to draw your attention to the cautionary statements on Slide two.
We will be making several forward-looking statements throughout the course of this presentation and likely in the Q&A as well. On the call today, to assist with the presentation and answering questions, are Jinhee Magie, our Senior Vice President and Chief Financial Officer, and Peter Richardson, our Senior Vice President and Chief Operating Officer. Through our prepared remarks, we will be focusing on the quarter results and our current outlook. We recognize that there is continuing interest in our readiness and response to COVID-19, and we'll be happy to answer any questions in detail during the Q&A to specifically address our activities in this regard. At Lundin Mining, safety is one of our four fundamental values and is always at the core of our business decisions.
COVID-19 is a global threat, which requires a united response from governments, industry, and our communities to ensure the safety, health, and well-being of all. Each of our operations is continuing to manage and respond within the framework of the company's pandemic response plan, recommendations of health authorities, and local and national regulatory requirements. Corporately and at each operation, we continue to identify and implement measures to protect our workforce and our communities. Across Lundin Mining, we are taking numerous steps to ensure needs are being addressed in the communities and regions in which we operate. We are sharing action plans and the preventative measures being taken with our employees, unions, contractors, communities, and industry peers while seeking and considering their input to ensure we are delivering responsive actions consistent with broader efforts.
Further, we are actively providing support in the form of community donations of emergency funding, essential supplies, and numerous other forms. The photos on this page demonstrate some of the basic measures being implemented and the coordination with government and local health authorities to protect our workforce and our communities. There are numerous other measures we are taking. Just one example is at Candelaria, where we have provided an air-conditioned construction trailer to help local authorities conduct effective roadside health checks. I would like to acknowledge all of the Lundin Mining employees and our contractors who are working tirelessly and have risen to many challenges to keep our operations running and, most importantly, safe. COVID-19 is impacting the way we operate, but we will strive to continue delivering on our mission to responsibly mine base metals vital to society, delivering meaningful value to all of our stakeholders.
Now I'll turn the call over to Jinhee to look at our summary financial results. Jinhee.
Thank you, Marie. Looking at a summary of our results, on Slide four, our operations in aggregate produced over 112,000 tonnes of base metals and approximately 38,000 ounces of gold in the first quarter. We sold over 101,000 tons of payable base metals and approximately 39,000 ounces of gold, generating revenue of $378 million. The quarter's revenue was significantly impacted by negative provisional pricing adjustments given the decline in the market price of many of the metals we produced. The negative impact on revenue was $63 million for prior period adjustments and $86 million in total for $0.12 per share, including mark-to-market of current period sales. Additional information on our provisional prices and pricing adjustments is included in our MD&A in note 12 of our financial statement. 64% of our revenues were generated from copper.
Gold contributed an increased 15% to overall revenue with the contribution of unencumbered gold production from Chapada and the strong gold price. Zinc, nickel, and lead contributed a combined 21% to total revenue. Slide five presents a summary of the quarter's financial results, the details of which are in our financial statements and MD&A issued last night. First quarter revenue was 9% below that of the same quarter last year, in part owing to lower metal prices and negative price adjustments as discussed. The price decline was offset by higher copper, nickel, and gold sales volumes, mainly due to the acquisition of Chapada and increased production from Candelaria. Gross profit was significantly lower, reflecting the decline in revenue as well as inclusion of Chapada production and depreciation amortization costs and increased amortization of deferred stripping at Candelaria with mining in Phase 10 of the open pit.
Attributable loss from our operations was $0.15 per share. First quarter net loss was negatively impacted by the gross profit as discussed and $62 million or $0.08 per share of deferred tax expense at Chapada arising from foreign exchange translation, which has no cash impact. Adjusted loss was $0.06 per share for the quarter. Details of the adjusted loss are in our MD&A issued last night. Despite the negative provisional pricing adjustments, we generated EBITDA of over $90 million in the quarter. Cash flow from operations was $83 million and adjusted operating cash flow before changes in non-cash working capital was $28 million or $0.04 per share. First quarter capital expenditures on a cash basis were $141 million. We will discuss more details of CapEx later in the context of reducing this year's overall capital expenditure guidance by 30%.
We ended the quarter in a strong financial position with $367 million in cash and equivalents, net debt of $118 million, and a further $430 million available under the company's revolving credit facility, excluding the $200 million accordion. In March, the company drew down $150 million on the revolver and took out an additional term loan at Candelaria as precautionary measures to protect against economic uncertainty. This is reflected in the increase in the debt position this quarter. Yesterday, our board of directors declared a regular quarterly dividend of CAD 0.04 per share or CAD 0.16 per share on an annualized basis, maintaining the increase announced last quarter. We remain in a strong financial position with ample liquidity and minimal financial leverage. I will now turn the call back to Marie to discuss our operations and projects.
Thanks, Jinhee. On slide six, Candelaria had a good operating quarter, particularly in the context of implementing operating changes to protect our workforce and communities from COVID-19. Production was impacted by ore hardness and available operational hours of the SAG mills, which limited the mill throughput. While we worked to minimize the impact of the mill optimization project in the quarter, construction interferences and other operational downtime affected mill throughput more than planned. We have now completed upgrades on three of the four ball mills. On the line where both ball mill upgrades have been completed, we are seeing the expected performance increase of finer grinds and increased recovery. Optimization work continues. Overall, construction was approximately 87% complete on the Candelaria mill optimization project at the end of the quarter.
We have postponed the upgrades on the fourth and final ball mill given restrictions arising from COVID-19, limiting the ability to safely mobilize contractors and consultants. The expected completion of the mill optimization program in the second half of the year assumes that we will be able to safely mobilize the necessary personnel and coordinate with the planned mill maintenance shutdown. Ore hardness is expected to decrease beginning this quarter through the remainder of the year and is considered in our revised production guidance. We have widened the copper production guidance range for the year, maintaining the high end with a modest reduction at the low end. We have modestly revised gold production as well. Aggregate site operating costs were below planned for the quarter, owing primarily to the favorable exchange rate. The Chilean peso USD average was 8.02 versus our plan of 6.75.
Full year cash cost guidance has been improved to $1.35 per pound of copper from $1.45 per pound. The majority of the decrease owes to a more favorable exchange rate assumption, with the majority of our operating costs Chilean peso denominated and driven. Lower diesel price and electricity price assumptions also contribute to this. Candelaria's sustaining capital expenditure guidance for the year has been reduced by approximately 13% to $230 million. Of this, approximately $150 million remains with $77 million capitalized in the first quarter. Capitalized stripping is expected to be lower, mainly due to the deferred volume as well as the lower mining costs. Also included is deferral of some underground mine development and technology implementation, as well as some drilling equipment. 2020 was already a low CapEx year for Candelaria compared to the previous two years' average of greater than $400 million per year.
2020 exploration expenditure guidance has been reduced to $15 million from $20 million. The $5 million reduction is related to drilling and drifting. Candelaria has long mine life already ahead in the proven and probable mineral reserve category, owing in large part to our significant and successful exploration programs over the last several years. Candelaria is positioned to deliver over 30% production growth by 2021 over 2019 with improving cash costs. Moving on to Chapada on slide seven. Chapada also had a good operating quarter, particularly again in the context of implementing the operating changes and reducing the number of people on- site to protect the health and safety of our workforce and communities. The mine performed well during what turned out to be a very heavy rainy season, and mill throughput was above plan.
Gold production was impacted by poor recovery, which has since improved to levels comparable to the fourth quarter of last year. Full year copper production guidance has been maintained, while gold production guidance has been moderately reduced to reflect the first quarter results. Copper cash costs were better than planned, benefiting primarily from a favorable foreign exchange rate and from strong gold prices, which improved the realized byproduct credit. The majority of Chapada's operating costs are Brazilian real denominated. It was slightly above and averaged 4.46 versus plan of 3.75. The gold price averaged $1,583 per ounce, and while this is still well below current pricing, it was significantly better than our plan of $1,350. Full year cash cost guidance has been improved to $0.85 per pound of copper from $1.15 as a result of the more favorable foreign exchange and gold price assumptions.
Capital expenditure guidance for Chapada has been lowered by approximately 33% to $40 million. Approximately $4 million was capitalized in the first quarter. Roughly $7 million of the reduction is related to capitalized stripping, reflecting both a lower expected stripping ratio as well as exchange rate benefits. Discretionary exploration, land acquisitions have also been deferred. The remaining significant items are small project deferrals and some mine equipment replacement. The 2020 exploration expenditure guidance has been lowered modestly to $7 million-to $7 million from $10 million previously. In responding to COVID-19, the exploration program has been reduced in the short- term to minimize the number of employees and contractors on site. We have brought some drilling activities back on and are planning on how to increase drilling again as the situation allows.
Approximately 40,000 meters of drilling is planned for the year from 50,000 meters previously, with the majority of this to focus on near mine targets. Approximately 5,400 meters were completed in the first quarter. We believe there's significant value to be created at Chapada through expansion at the appropriate time. The study work is ongoing. As we have indicated previously, the expansion strategy will be underpinned by the exploration success that we can achieve. Moving on to Neves-Corvo on slide eight. The operation had a challenging quarter, particularly in March, with a significant number of employees working from home and a large number of contractors suspended for COVID-19 risk mitigation measures. The Zinc Expansion Project was temporarily suspended and the workforce demobilized. Zinc production was as expected, with plant throughput, head grade, and recovery all in line with plan. Copper production was impacted primarily by below planned head grade.
Mining in lower- grade ore zones, in particular lower grade ores from the Corvo ore body, had a large impact on the copper grade and thus on metal production. Aggregate site operating costs were better than planned before a favorable exchange rate. However, on a cash cost basis, these benefits were negatively impacted by lower copper production levels and zinc by-product pricing, resulting in the Q1 cash cost of $2.24 per pound of copper. Full year copper production guidance has been reduced, reflecting the first quarter results. Zinc production guidance has been revised to reflect production from current operations only due to the uncertain timing of the restart of the ZEP. We are also reviewing potential impacts on the 2021 zinc production estimates. Copper cash cost guidance has been revised to $2.10 per pound, $1.80 previously, reflecting reduced zinc byproduct production and lower pricing assumptions.
Capital expenditure guidance has been reduced by $120 million or 52% to $110 million. The majority of this reduction, $100 million, reflects the temporary suspension of the zinc expansion. The project advanced very well during the quarter, on track for the phase startup and production during the year prior to the temporary suspension in mid-March. $55 million is forecast to be capitalized on the ZEP this year on a cash basis. A little under $31 million have been capitalized during the first quarter, which means $24 million over the remainder of the year. This relates mainly to payment for work that has already been completed and continuation of some minor works. Sustaining capital expenditure guidance has been reduced by $20 million to $55 million. Approximately $16 million was capitalized in the first quarter.
The majority of the deferral relates to mine development as well as underground drilling, mobile equipment, and other smaller items. The 2020 exploration program has effectively been curtailed, with expenditure guidance lowered to $2 million from $7 million previously. First quarter expenditures were approximately $1.2 million and no additional drilling is presently planned for the year. I will now turn the call over to Peter to review the zinc expansion progress up to the suspension date, as well as the performance for Eagle and Zinkgruvan. Peter.
Thanks, Marie. We continue to make good progress advancing the ZEP project in the first quarter. In fact, surface construction had recorded the highest monthly progress rate to date prior to the temporary suspension. Slide nine shows some of the progress achieved. At the end of the quarter, the underground aspects of the project were 88% complete. Civil and mechanical works were largely complete. Development of lower slopes were advancing as planned, with the first two sub-level accesses continuing. The two pictures on the left show the number two transfer tower and crusher chamber nearing completion. Surface construction was nearly 80% complete, with the materials handling and the SAG aspects more than 98% complete. The photo in the middle right shows initial SAG mill commissioning work in progress, and the photo on the right shows how advanced the flotation circuits were preparing for commissioning as well.
On slide 10, the Eagle Mine and Humboldt Mills performed well during the quarter. In response to COVID-19, we have modified our procedures at Eagle in accordance with state and local health recommendations. Approximately 45% of our own employees at Eagle on a daily basis are working from home in order to improve physical distancing. Development of Eagle East was fully completed 13% under the original cost estimate and a full month ahead of schedule. As mining progresses into the higher grade regions of the Eagle East ore body, grades are expected to increase. We are currently processing notably higher nickel grades, and these will be variable throughout the year. The first quarter cash cost of $1.43 per pound of nickel was in line with plan despite lower byproduct copper price. Full year nickel and copper production, C1 cash costs, and capital expenditure guidance have all been maintained.
Eagle's 2020 nickel production is set to increase more than 3,000 tons or 22% over 2019 as reduced cash costs as higher- grade Eagle East ore continues to contribute to the mill feed. Similarly, copper production is expected to increase more than 2,200 tons or 15% this year. Eagle remains well positioned to generate meaningful free cash flow even in the current metal price environment. Lastly, Zinkgruvan on slide 11. We have modified work arrangements to reduce the number of people on site, enhancing sanitation regimes and implementing several changes to improve physical distancing. We are implementing many of the preventive and health measures at Zinkgruvan that we are on our other operations. During the first quarter, Zinkgruvan achieved excellent performance in the mine and mill, though zinc production was negatively impacted by the zinc grade.
We have resequenced mining of several slopes due to temporary ground stability considerations. The rescheduling unfortunately means pushing out mining of some higher grade zinc slopes until later in the year and a lowering of the expected average zinc grade for the year. Aggregate and per ton mill costs were better than planned in the quarter, even before the impact of favorable foreign exchange rates. The increase to cash cost guidance relates primarily to the decrease in zinc production as well as to an assumption of lower lead byproduct credit. 2020 capital expenditure guidance has been lowered by $5 million to $45 million. This includes deferral of some mobile equipment as well as the elimination of small projects and foreign exchange benefits making up the balance. Approximately $8 million was capitalized in the first quarter.
Exploration efforts continued in the quarter on existing ore bodies from underground as well as targeting Dolby deposit from surface. Full year expenditure guidance has been reduced to $7 million from $15 million. Geophysical surveys and some drifting activities have been deferred. Planned drilling has been reduced to approximately 17,000 meters from 60,000 meters previously. I will now turn the call back to Marie.
Thanks, Peter. We have discussed the revisions to our production and cash cost guidance in each of the operation sections and in detail in our MDNA. This table provides a summary of the current guidance. As we have noted, our operations have not experienced significant disruptions to production, shipment of concentrate, or supply chains as a result of COVID-19. However, we have reassessed the production in light of the temporary suspension of the zinc expansion and operating procedures implemented to reduce the risk of infections at our site. Further, cost reduction programs have been implemented to respond to the low metal price environment. Similarly, slide 13 provides a summary of our capital and exploration expenditure guidance. We have discussed the revisions in previous operational sections and in detail in our MDNA as we had with the costs.
Our 2020 capital expenditure guidance has been reduced by $180 million or over 30% to $440 million as a result of the temporary suspension of the zinc expansion and cost reduction programs implemented to respond to the low metal price environment. Planned exploration expenditures have been reduced by 36% or $20 million to $35 million, with focus remaining on near mine targets. Our assets, which have active exploration programs, all have long mine lives ahead of them and proven and probable mineral reserves. This reflects successful exploration programs over the last several years. We do not expect the deferral of exploration expenditures to have a significant impact on the near or medium-term mine plans. We believe there remains significant value to be created at our operations through exploration. We will ramp up these programs with consideration given to health and safety and economic conditions.
Turning to slide 14, a familiar slide, though with slight modification this quarter. From our current assets, we continue to have an excellent growth production profile, now benefiting from previous significant investment initiatives over the last few years. We continue to guide for over 30% growth in attributable copper production from our current assets from 2019 to 2021. The growth is primarily attributed to realizing the benefits of the low-risk, high-return investments we were making over the last two years and are nearly complete, at Candelaria in addition to the Chapada acquisition. With the temporary suspension of the Neves-Corvo Zinc project, we are currently reviewing the 2021 and 2022 zinc production forecast. The addition of Chapada has increased our gold production and, more importantly, has significantly increased our attributable and fully exposed gold production to nearly 100,000 ounces this year based on our current guidance.
Lastly, nickel production is set to increase as the higher grade ores of Eagle East are mined. Before opening the line for questions, I would like to reiterate a few key points on our strategy and advantageous position. We aim to operate, upgrade, and grow a base metals portfolio that provides leading returns for our shareholders throughout the cycle. We believe a copper-dominant portfolio coupled with other well-positioned base metal mines and precious metal byproducts will continue to enable the best returns throughout the cycle. Assets with a competitive cost position such as ours reduce the real and perceived risks of potential curtailment in the trough of the cycle while offering leverage and ability to create meaningful value through the upswing. We aim to maintain low leverage and a flexible balance sheet while increasing direct shareholder return.
It's difficult to predict when the cycle may turn, as it often does so quickly. Operating with low leverage and a flexible balance sheet has positioned us well to navigate the economic impact of the pandemic while maintaining direct shareholder returns. With that, operator, I would like to open the lines for questions.
As a reminder, if you would like to ask a question, press star then the number one. That is star one for questions. The first question comes from the line of Orest Wowkodaw, Scotiabank.
Hi, good morning. Orest here from Scotiabank. I was wondering if we can get a bit more color on Neves-Corvo. When I look at your revised zinc guidance, it would imply essentially no growth from 2019 levels. Does that imply that you're effectively assuming that the ZEP is delayed until the end of the year?
Hi, good morning, Orest. Yeah, that's correct. We have taken out the ZEP from the 2019, and we have assumed that we are not going to restart in our base case plan. We have assumed that a restart is not until January 1. There are a couple of reasons for this, the first being that we could try to bring it back in the summer or another time, but at the moment, we feel there is a risk that we will have to curtail again if there is a second wave of COVID-19. We do not want to remobilize and have to do a partial or full demob again. We think that would be really value destructive. Plus, right now, with zinc prices where they are, we are not in any screaming rush to bring on zinc when TCs are as high as they are and the prices as low as it is.
If we can preserve and defer that $100 million that we still have left to spend in a low zinc price environment, we think that's a prudent thing to do.
I see. I realize you're still reviewing your operating plans then for 2021 and 2022, but is kind of the right way to think about it just basically take the old mine plan, push it back a year as a rough guess?
I wouldn't necessarily say a year, maybe nine months if you want to be conservative than a year. Peter, what would you say? I think we need three months of ramp-up on the essentially what we were going to start in March, we'll start on January 1 according to the current plan.
That's correct, Marie.
Okay. Thank you very much.
Yep.
The next question comes from the line of Dalton Baretto with RBC Canaccord Genuity .
Thanks. Good morning, guys. My first question is on what Marie touched on in terms of the FX rates of diesel and the implications on the cash cost. Marie, have you moved to lock in some of these exchange rates in Chile and Brazil as well as the diesel prices?
We have not, although I know Jinhee's been looking at this with the sites, in particular with Candelaria on some of them. I believe that the cost to lock in the prices were not that compelling. Jinhee, do you want to give an update on that?
Sure. Candelaria and Chapada both have long-term contracts on the diesel. We are, and we have been looking at some hedging and locking in some prices, but at this point, we did not find it compelling, the cost of the hedging and locking in the pricing to be compelling at this point, but we will continue to assess.
Yeah, I think it's not helpful, Dalton, that they want all the payment upfront and they want major upfront payments and a lock-in price much higher than we have right now in the market.
Okay, thanks. That's helpful. Maybe one question on provisional pricing here. I mean, it adds an unnecessary element of volatility here. Can I ask what your rationale is for not hedging out your exposure during the quotational period?
Yeah, that's something that we have never done. We have always stayed naked on our exposure on metal prices. We always get the question as to why we don't do it when the prices go down, and we always get praised for not doing it when the prices go up. Our position and our policy is to not hedge our metal exposure.
Okay. Maybe just one last one from me. The CapEx deferrals, presumably these are either necessary or higher risk or higher return projects, I should say. Just given your balance sheet, why did you feel the need to actually defer some of these?
It's a little bit about discipline, Dalton. I mean, some of the things that we have kept in there, for example, the mobile crusher, we have kept in there for Chapada because it is a high-return project that easily could have been shelved. A lot of the deferral as well will have to do with the fact that we have restrictions on contractors right now, and we've cut back significantly the number of contractors that can come to our sites, especially if they're traveling from other regions. If you're doing an improvement project that requires a specialist consultant to assist in the implementation of something new, you're not going to be able to bring them to site. Some of those things have gone by the wayside.
Some things we're just looking prudently and asking the sites that they take extra special care because of the low metal price environment and that they implement some cuts in order to preserve their cash flowing, the cash flow at the sites. We have a good plan. We have been able to cut without hurting the future production, and I think it's prudent, and there's nothing there that is a really high-value item that we haven't considered leaving in.
That's great. That's all from me, guys. Thank you.
Okay, thanks.
The next question comes from the line of Greg Barnes with TD Securities.
Thank you. The SAG mill operational hours issue at Candelaria, was that all just related to CMOF, or was there something else going on there that caused that issue?
No, we did have some challenges with the ore hardness. Peter, do you want to elaborate on that?
Yeah. The throughput issues, I'll say about 65% were to do with CMOF and other operational issues, and 35% of the loss was due to ore hardness. We did have some complications during the CMOF work on the third ball mill motor upgrade, but also other operational issues during the quarter that we have resolved.
Okay. So that is fully reversed, I guess, going into Q2.
Yep. Most of them.
Marie, just on drilling at Chapada, you slowed that down, but you're still continuing the studies on the expansion scenarios for the operation. Is this slowing down what kind of decision timing we could think about for when you would come out with some view on what you're going to do at Chapada?
The reason we slowed down initially, it wasn't for economic reasons or a need to preserve cost. It was because we looked at what are the simple things that you can curtail at the moment in order to reduce the number of people at site and the number of visitors to site. The exploration was an easy one where it didn't affect your production, and you could reduce the number of people at site. That was really a COVID-19 response. At many of our sites, we did reduce the exploration programs initially as a COVID-19 response. We're already looking at how we ramp that back up and bringing people back to get the drills turning again. We have proceeded with the desktop studies. I can't say for certain how it will affect the timing of the final decision.
We had been kind of thinking of an 18-month kind of time frame. If we don't get the drilling that we need, maybe we may delay that by a couple of months, but it's hard to say right now.
Okay. Okay. That's good. Thanks, Marie.
Yep.
The next question comes from the line of Jackie Przybylowski with BMO Capital Markets.
Thanks. I know you guys have gone through a lot of the detail already. I'll just ask a couple of quick ones. Firstly, on the NCIB, I know in Q1 you did buy back some shares. I was wondering if you could maybe talk a little bit about what your thoughts are given the current environment, if purchasing on the NCIB is a high priority for you right now.
Yeah. We did talk about the capital allocation and how we look at capital return during a quite low metal price environment and if we end up having any suspensions due to outbreaks at our mines. We ran a number of scenarios, and we're fairly healthy with a 30- and 60-day suspension scenario at any of the mines or all of the mines. We're still in fine shape, but we decided that we would probably not prioritize the NCIB, but that we wanted to maintain the dividend, and there's no reason why we shouldn't be maintaining the dividend given our financial strength. Right now, we're proceeding with caution on the NCIB, but have maintained the dividend.
That makes sense. Maybe just a—this is probably a dumb question—but I noticed on your Q1, the taxes at Chapada were pretty high. Can you give me a little bit of a color as to why they were high in Q1 and maybe what we can expect for the rest of the year?
Yeah. Not a dumb question at all. Jinhee's heard me rant about this tax in Brazil. It kind of drives me crazy, the ups and downs. Jinhee, can you elaborate on that for Jackie?
Sure. Absolutely. Yeah, Jackie, it's not a dumb question. We were just joking about how the accountants and the CSAs, we don't understand it really either. It is very much an accounting-driven thing. At Chapada, because our financial reporting currency is in USD, but our taxes are filed in Brazilian real, when we are calculating our deferred taxes, we have to actually retranslate our USD balances on our net assets back to Brazilian real. What this does is it changes the cost base in the local currency, which then raises a deferred tax. In Q1, where we had a weakening Brazilian real, it basically translated into higher local currency amounts, and that drove the deferred tax liability and the deferred tax expense.
I guess just on the expectations going forward, it's really hard to predict what that's going to be because it really does depend on the Brazilian real to USD FX relationship. If it continues to weaken, then we'll continue to see some additional expense. If it strengthens, then we'll see a recovery on that in the future.
Got it. Thanks very much for the explanation. That's it from me.
The next question comes from the line of Oscar Cabrera with CIBC.
Thank you, Barriault, and good morning, everyone. Marie, as you are undergoing the revision of the Neves-Corvo zinc expansion, if I remember correctly, this project first came about because zinc prices were expected to go above $1. In your comments or in the first question, you mentioned higher TCs. Just wondering if you could help us think through this. With the project coming back at the beginning of January, are you thinking about any type of rationalization? There is also a point in time where copper was being processed through the zinc circuit. Is there anything you can do to understand that the sunk cost is there? How are you thinking about it?
I kind of missed a little bit of the question there, Oscar, but in terms of the—it is a balance between the TC and the price. The TCs have an impact on the metrics as well. When we are looking at, say, I think a $10 increase in the TC is going to have—if you have 100,000 tons, then that is going to be a million dollars difference, right? We always look at the TCs and also whether there are escalators and the payables and the TCs, and those are important, but the price also is important. The reality for Neves-Corvo is that it will be better for productivity and for the fixed cost coverage if we have more production.
I think ultimately, the zinc expansion project is a project that will help the mine be more profitable, and it's something that we need to embark on at the right time. For the time being, there's no rush to bring on the zinc when the prices are so low. If we're in cash preservation mode, it makes sense to suspend that since we've had to demobilize because of COVID-19. I don't know if that answers your question or not.
Yeah. No, it does. It does. I guess if there had to be further suspension, you just give us an idea of what remobilizing the site would cost. If you could, lower the zinc production, or is it better just to fully utilize the expansion?
Yeah. Those are things that we look at on a continuous basis, and we continue to study. Neves-Corvo, of all of our mines, that one has the lowest margins typically. We have challenged the site to study what they can do to improve that. We are always looking at ways to improve and the optimal mix. In the future, it may not be having all of the mills full at all of the time. It may be some lesser number, but to get a better recovery or a better quality. Those are things that we continuously look at when we do our planning and life of mine plans every year as well.
Okay. That is helpful, Marie. Thank you. Then on your cost, I wonder if you could comment. It just seems like the vast majority of the reductions in both Candelaria and Chapada had to do with foreign exchange. Is there a way to quantify how much of that reduction was that for higher by-products?
Yeah. For Candelaria, there would not have been a big change in the byproduct because a lot of our gold is streamed. But say, for example, at Chapada, typically 70-80% of our cost might be in the local currency. You can go on that basis. Whereas at Candelaria, maybe it is 60-70%. I think those would be typical ranges for costs in the local currency. We also did have a benefit from those two sites from the diesel price as well. Say, for example, Candelaria, $50 a barrel, we might have a $30 million cost. If it is much lower than that, you can extrapolate down.
If things were to stay or the economic slowdown would continue, is there more in the system where you can take out more cost? What would the trade-off with production be?
Yeah. There are definitely things that we can do to take out cost. It's a question of how far do you want to go and what will your mine plan look like in the future years? Because most of the cost that'll be meaningful to take out is going to be in OpEx or sorry, in CapEx. It's the deferred stripping in the underground mine development where you're going to cut back on contractors, you're going to cut back on those things, and it won't interfere with you keeping the mills running. I mean, we could park all the trucks at Candelaria and run off the stockpiles, and the same thing at Chapada, but then we're not doing the development we need to go forward. Those are scenarios that we've run.
If we did have a very distressed metal price environment, those are things that we would look at doing.
Okay. Okay. Thanks very much, Marie. Best of luck.
Okay. Thanks, Oscar.
The next question comes from the line of Lawson Winder with Bank Of America.
Hi. Good morning. Thank you for taking my questions. I just wanted to go back to Chapada in Brazil and just on the alarming number of COVID-19 cases in the country and just sort of dig down a little bit on your contingency plans there and just ask what would give you confidence that you could potentially keep running there. Also, I wasn't sure if you might have the ability to keep employees on site there for an extended period of time and sort of isolate the mine. That might be another option as opposed to suspension.
In Brazil, while a lot of our workforce lives in the local town, which is there are two towns that are less than 10 minutes from the site. We do not have the facilities to isolate people on site because they are close to the major centers, so we do not have any kind of camps or anything like that. We are watching very carefully the developments in Brazil. We do notice the cases are increasing. Right now, within a 100-mile radius of the mine, there is one confirmed case that we are aware of in a town called Campo Norte. It is a truck driver who works in another town who is not associated with the mine who is currently isolated. We have done a number of things there in order to try to protect people.
There's education programs as well as all the things that we're doing at the sites, which lots of different things, including limiting visitors. We've changed our protocols on visitors' travel. We have temperature checks at the mine gate now. We have mandatory quarantine for people who may have had incidental contact or exposure. We've changed a lot of our work processes, reduced the amount of contractors at site significantly. We have taken all of the steps that you would expect that we would take in order to reduce the risks. That does not eliminate the risks. It reduces them. In the event that we did have an outbreak and had to have a shutdown, we do have shutdown plans and contingency plans for that. At each of our sites, we have a pandemic response plan and have an outlined emergency shutdown plan.
In Brazil, we've been in contact with the authorities. We've sent them information on what we're doing to safeguard the people at the site. We've had good feedback that they're very satisfied with that. All we can do is continue to be diligent and continue to try to reduce the risk to our people and respond when and if we do have an exposure.
Okay. Great. Thanks for that, Marie. Also on Chapada, would you have any additional comments on the lower gold recoveries there and just why is it that they're now expected to improve and to keep to? That would be great. Thanks.
Oh, yeah. Definitely. Because that's something we've been focusing on. Peter, do you want to elaborate on that?
Yeah. I can elaborate on that. First of all, the gold recovery in the first quarter was mostly due to lithology. Different spots in the—we have three pits, Chapada. Different places, and the pits have different recovery of gold. We were mining in difficult areas. Also, some of the ore was from higher benches, a little bit oxidized. It did affect the gold recovery. We have seen late in the quarter, and we've seen the gold recovery bounce back to normal levels. That is something that we're expecting to go forward. It is also captured in our forecast guidance.
Okay. Great. Then.
Sorry?
Sorry. No, go ahead, please.
It is more related, as I said, to different lithologies from the different production areas in the mines.
Yeah. No, that's great. Thanks. It's very clear. Just one final one from me. You have a handy breakdown of your cash balance, I think, of $367 million in terms of the various currencies, just so we can get an idea of potential exposure there on translation risk. Thanks.
Jinhee, do you have that handy?
Yes. We maintain most of our cash in U.S. currency. I would say about 80% in U.S. dollars. The rest of the 20% would be in, say, 10% or so in pesos and some in euros and Brazilian reais just for working capital needs and purposes.
Great. Thank you very much, guys. That's it from me.
The next question comes from the line of Daniel Major with UBS.
Hi. Dan Major here from UBS. Thanks for the presentation. A couple of questions. The first one, we've heard from Antofagasta and other operators in Chile in particular that running substantially reduced on-site workforce and, as you've mentioned, lower levels of stripping development, etc. Can you give us a sense, particularly at Candelaria, but also elsewhere, how much on-site labor is down and how long the current sort of situation of partial restriction could last for before it would start to impact mine plans either in 2020 or 2021?
Sure. I'm just looking at the numbers from the most recent numbers of staff. We get updated every day. I don't have today's update, but I do have yesterday's. We still have 3,000 people working on-site. At Candelaria, I'm talking about Candelaria at the moment, we do have, call it, 250 working from home, another 107 in high-risk category, I guess, with some conditions that would make them high risk if they did catch the virus. They have been ordered to stay home to protect them. We have 450-ish contractors suspended from the site. In terms of order of magnitude at Candelaria, we don't have a huge amount of people away from the site in terms of the total workforce.
We have done a number of things that, I guess, would keep them from interacting with one another, such as changing the shift to schedule changes and changing the busing patterns and cafeteria patterns and things like that. For Candelaria at the moment, we can probably go on for quite some time as we are going. Where it would get concerning is where we have to do major maintenance stops and things where we need to have people coming from external, like a specialist who will come to do certain types of maintenance and certain projects for us that are not able to travel or cannot come to site, which is something that we are watching. Similar with Chapada, we have probably about, Peter, correct me if I am wrong, 600 contractors have been temporarily put on suspension there.
That is mainly in the deferred stripping area and not in the production area. Obviously, we want to start doing that or it will affect next year's mine plan. I think maybe six months of not doing it will probably not have a big impact. Beyond that, you want to get going and start doing those things. Those are the two big ones. Eagle in Marquette is working per normal, and we do not have a lot of people off-site except for the people who can work from home who are still productive. Zinkgruvan, as you know, Sweden's taken a very different approach than the rest of the world. It is business as usual in Zinkgruvan. Who did I miss, Neves-Corvo?
We have a significant amount of people suspended from site at Neves-Corvo doing underground development on Lombador as well as surface works and a number of other contractors. That is one site where we do have a significant amount of people off-site. You have seen the impact that it has had on our plans where we have withdrawn our zinc guidance.
Okay. I guess the conclusion to that is for now and for the next few months, at least, the current situation has no threat to the kind of plans you've laid out this year and next.
No. You can see, other than for zinc, we've reaffirmed our guidance on a three-year basis.
Okay. The second question is on the CapEx. The $180 million deferral, I guess the $100 million ZEP is quite obvious that that's a direct deferral. In terms of the $80 million of sustaining and the reduction in exploration spend, is it fair at this point to assume that you can catch most of that up in 2021? We should be adding that to our CapEx estimates for 2021, or will that be sort of spread over a number of years in terms of catching up on that sustaining and development send?
I think that will depend on the site because at some sites, there's only so much you can do in a year. For example, Neves-Corvo underground development, if you defer it, you're just pushing it out by X amount of months because you're not going to suddenly double up the amount of underground development you do in a year. That's more of a pushing it out rather than a catching it up, if that makes sense. With the deferred stripping at Candelaria and Chapada, Candelaria in particular is a big number. We could catch that up potentially just by bringing on more contractors to do the stripping. That's one where we'll have to make the decision about how much more we want to do next year.
I would say I would not just automatically add it in a WAP to next year for the other sites other than Candelaria.
Okay. Got it. Useful. Thanks. Just final quick one, just to catch it. What's the undrawn credit facility liquidity position at the end of the quarter? You've got the cash balance, which you're given. What's the undrawn credit?
Yeah. Jinhee, can you give that number?
Sure. The undrawn credit's about $430 million.
Excellent. Thank you very much.
That's without the accordion option, correct?
Yes. Correct. We also have a $200 million accordion option on top of that.
Okay. Cool. Thanks.
The next question comes from the line of Ioannis Masvoulas with Morgan Stanley.
Yes. Thanks very much for the presentation. A couple of questions left from my side. The first one on Neves-Corvo and the ZEP project. If we were to fast forward nine months and the zinc price is still where it is today and the expectations around the annual TCs is for a stable development, and assuming the COVID-19 outbreak is under control, how would you feel about restarting the project on January 1 in terms of the overall economics of the project? I'll stop there for the first question.
The project still is a good project. We plan to restart on January 1 according to our base case right now with the assumptions that we had in the quarter, which was, I believe, Jinhee, $0.80 zinc and $2.25 copper.
Sorry, Marie. I was on mute. It was $0.85 zinc and $2.25 copper.
Okay. Yeah. Our assumption is at those prices, we would restart the project on January 1.
Okay. Understood. A second question around the capital allocation. You mentioned that you have maintained the progressive dividend and you will progress on the NCIB a bit more slowly. Just putting into perspective, we have seen, obviously, a lot of volatility around metal prices, some risks to production across different sites globally. How do you feel about having a progressive dividend instead of having a payout ratio? With regards to the NCIB, obviously, we do not have a lot of visibility on how that progresses throughout the year. Would it not make more sense to think about, let's say, a special dividend that would give more visibility to investors on cash coming back to them?
We are very comfortable with the dividend. We have run a number of scenarios, including 30 and 60-day shutdowns at the sites where we can comfortably maintain our dividend at the prices that we just mentioned and with the temporary curtailments at any of the sites. The reason why we kept the discretionary part of the NCIB is for just this reason where there is uncertainty. We felt that we wanted to keep the discretion, which is something that we will continue to do. In terms of a special dividend, I am on the board of another company who has done special dividends. While they are nice, they do not—I am not sure there is a long-term benefit to the special other than to some of the in-and-out short-term investors.
The capital returns are good for the long term, but I think a steady, consistent, reliable dividend is something that we value and we think our long-term shareholders value and like to see. It also provides us with some discipline in terms of knowing that we have to maintain a certain amount of liquidity and that it's an important part of our capital return strategy. It impacts our decision-making, and we think it's an important part of our capital return program.
That's clear. Thanks very much.
Okay. It's 9:02, so let's have one more question if there is one.
The final question comes from the line of Stefan Loannou with Cormark Securities.
Thanks very much, guys. Most of my questions are answered. Thanks for the detailed answers on everything. I guess just maybe just given your response to COVID-19, and I'm sure that's taking up the lion's share of your time right now, and for good reason. I mean, in the background, is there still much thought going into potential sort of future growth strategy right now, or is that kind of been put on the back burner just to address sort of the near-term sort of issues that you have to deal with with COVID-19 and everything else?
Yeah. We're in a steady state right now on the COVID-19 response. We have our regular meetings and regular updates, and the sites have done an exceptional job in managing. We are focusing on the business other than just COVID-19. That part is something that we're very active in maintaining relationships. We're talking to lots of parties and, of course, getting calls from lots of bankers. The challenge right now is it would be very difficult to do something without being able to conduct site visits. You can do desk studies until you're blue in the face, but with any mining asset, you want to be able to do the site visits and other things that you need to do in terms of diligence and things. We'll continue to look at that.
I don't think there's anything that stands out as if we didn't have a restriction, we'd be at the site now. That's not the case, but we are continuing to be active in looking at things.
Okay. Great. That makes sense. Thanks very much, guys.
All right. Thank you, everyone, for listening in today. We wondered whether it worked okay. Luckily, because of the rain, there are no leaf blower guys outside my window. Hopefully, next quarter, we will be able to take the call from our offices as per normal. Thanks again.
Thank you. This does conclude today's conference call. You may now disconnect.