Hudbay Minerals Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the HUD-Bay Minerals, Inc. Fourth Quarter 2021 Results Conference Call. At this time, all participants are in listen-only mode and the conference is being recorded. Following the presentation, we will conduct a question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would like to remind everyone that this conference call is being recorded today, February 24th, 2022, at 8.30 a.m. Eastern Time. I will now turn the conference over to Candice Brule, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning and welcome to HUD-based 2021 Fourth Quarter Results Conference Call. HUD-based financial results were issued yesterday and are available on our website at www.hudbay.com. A corresponding PowerPoint presentation is available, and we encourage you to refer to it during this call. Our presenter today is Peter Kikilski, HUD-based president and chief executive officer. Accompanying Peter for the Q&A portion of the call will be Steve Douglas, our senior vice president and chief financial officer. Andre Lauzon, our recently appointed Senior Vice President and Chief Operating Officer, and Eugene Lee, our Senior Vice President, Corporate Development and Strategy. Please note that the comments made on today's call may contain forward-looking information, and this information by its nature is subject to risks and uncertainties, and as such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the company's relevant filings on CDAR and EDGAR. These documents are also available on our website. As a reminder, all amounts discussed on today's call are in U.S. dollars unless otherwise noted. And now I'll pass the call over to Peter Pakilski. Peter?

Thank you, Candice. Good morning, everyone, and thanks very much for joining us. 2021 was the year of execution and delivery for HUD-BAY as we completed Brownfield's investments of approximately $250 million in our Peru and Manitoba operations. It was the year of focus and dedication as our operations continued to navigate the challenging environment with supply chain and labor constraints caused by the COVID-19 pandemic. It was the year of value creation as we made a new copper discovery on our private land in Arizona and demonstrated the value in our Mason copper project in Nevada. We continue to be more focused than ever on maintaining our strong safety culture and ensuring the safety of everyone at our operations and those within the communities in which we operate. In this presentation today, I'll go into more detail about our achievements and challenges in 2021, touch on the operating and financial performance of the business, and discuss an overview of our production and cost outlook as we execute on our key strategic objectives for 2022. But before we get into results, I'd like to congratulate Andre Lauzon on his recent appointment to Senior Vice President and Chief Operating Officer. Andre joined HUD-Bay in 2016 and was formerly Vice President of our Arizona Business Unit. He has held both strategic and operational leadership roles at the company, including Vice President of the Manitoba Business Unit. His appointment reflects both his readiness and his valued expertise and comes at an opportune time as our operations are embarking on a period of significant production and cash flow growth. Andre is a most welcome addition to our executive team. Further to this, Javier Del Rio has been appointed to Vice President South America and United States. Javier has over 25 years of mining experience and has been with HUD-Base since 2010. He was instrumental in establishing and growing our Peruvian business, including making Constancia one of the lowest cost open pit mines in the Americas, and overseeing the negotiation of key community agreements leading to the development of Pampa Concha. Prior to joining HUD-Bay, Javier held management roles in various areas and of increasing responsibility at Newmont Mining in the United States. His appointment also comes at an opportune time as we advance our United States business towards development to position us for the next stage of growth. These internal promotions serve to highlight the deep bench strength that we have at HUD-Bay. Now, starting on slide three, 2021 was a year of investment for HUD-BAY as we completed our short payback high return investment programs at Pampa Concha and New Britannia. In early 2021, Peruvian regulators granted HUD-BAY the final mining permit for the development and operation of the Pampa Concha deposit. We commenced pre-development activities following the finalization of the remaining land user agreements and achieved first production in April. This was a major milestone for us and the community, demonstrating a smooth ramp up and our strong social license to operate. We're also proud of the team's efforts in maintaining strong operations in Peru during the year, despite operating in a challenging environment with the recent political changes, social pressures, and COVID-19 impacts on our workforce. They navigated this environment and achieved our copper production guidance and exceeded our gold production guidance. In March 2021, we released our annual reserve and resource update, along with updated mine plans for our two main operations. The Constantia updated mine plan reflected an increase in copper and gold production from 2022 to 2025, as the higher grades from the Pampa-Cuncha deposit enter the mine plan. It also incorporated higher grade reserves from the Constantia-Norte pit extension, which extended the higher grade profile to 2028. This resulted in an increase of approximately 11% in contained copper and 12% in contained gold over the prior year's reserves. The Snow Lake updated mine plan released phase three of our Snow Lake Gold Strategy, focusing on expansion and further optimization of operations. The mine plan enhancements included optimized recoveries and throughput at store, the conversion of additional resources to reserves at LALOR, plans to expand LALO to 5,300 tons per day by 2023, and the mining of zinc reserves from the 1901 deposit starting in 2026. As a result of these initiatives, the annual production of gold, copper, and silver is expected to increase by 18%, 35%, and 27% respectively from 2022 to 2027 compared to the previous mine plan. Our New Britannia project was completed ahead of the original schedule, with first gold production being achieved in August. Commissioning and startup activities of the gold circuit were completed in July. We also completed the construction of a new copper flotation facility in October, followed by a brief commissioning period, and first production of copper concentrate was achieved in October. New Britannia achieved commercial production in November, and the ramp-up was best in class when compared to industry benchmarks which I'll touch on later. In June, we experienced a very unfortunate incident that occurred during underground mining operations at Lalor. A worker was fatally injured from a fall while working at height. We are still deeply saddened by this unfortunate incident and we're committed to preventing similar occurrences. We've undertaken an initiative to apply lessons learned from this loss across our business to ensure everyone goes home safely following every shift. We also took further steps to strengthen our balance sheet in 2021 with the issuance of new senior notes in March that lowered our interest rate by more than 3.5%. We also renegotiated our revolving credit facilities in October to increase the size to $450 million, reduce the interest rate, and extend the term, which provides significant financial flexibility. In the United States, we announced the initial discovery of four deposits at Copper World on our wholly owned private land adjacent to Rosemont in Arizona. We continued drilling and expanded mineralization to seven deposits later in the year. Before the year was out, we announced an initial mineral resource estimate that was larger and at a higher classification than we initially expected, and I'll touch on this shortly. And we published our initial PEA for Mason in April of 2021, which contemplated 27-year mine life and production levels that could more than double our production profile. At a copper price of $3.25, the NPV for Mason is three-quarters of a billion dollars with an IRR of 15%. High-quality copper projects in preferred jurisdictions are scarce, and we are uniquely positioned with the Copper World, Rosemont, and Mason copper projects in our project pipeline. These projects offer incredible leverage to copper and long-term optionality for future copper growth. Turning to slide four, we began to see increased production and cash flows from our recent brownfield investments during the fourth quarter. Q4 consolidated copper production increased by 21% from the third quarter of 2021 primarily as a result of higher throughput and copper grades in Peru. Consolidated copper production increased by 18% compared to the third quarter, a record for HADBE, primarily due to higher gold production in Snow Lake with the commissioning of the New Britannia Mill in the fourth quarter. For the full year 2021, we achieved consolidated copper, gold, and silver production guidance, while zinc production fell short of the 2021 guidance range. Peru copper production met 2021 guidance expectations with strong operating performance in the fourth quarter, including the continued ramp-up of Pampa Concha. Manitoba zinc production was below 2021 guidance primarily due to higher dilution and mine plan limitations at the 777 mine as it approaches closure. Consolidated cash cost declined from third quarter levels. This 18% improvement was mainly a result of higher copper production and higher gold byproduct revenue. Sustaining cash cost was relatively unchanged from the third quarter, as lower cash costs were offset by higher sustaining capital expenditures in royalties. Operating cash flow before changes in non-cash working capital was $157 million during the fourth quarter, reflecting an increase of $53.4 million compared to the third quarter, primarily the result of higher realized base metal prices and higher gold and copper sales volumes. Adjusted net earnings per share in the fourth quarter was 13 cents after adjusting for the impairment charge related to the revaluation of the environmental obligation in Flin Flon, among other items. Fourth quarter adjusted EBITDA was $180 million compared to $119 million in the third quarter of 2021. results were higher than the third quarter primarily due to higher copper and gold sales volumes and higher realized prices, partially offset by higher exploration and selling and administrative expenses. We exited the year with $271 million in cash and equivalents, as well as undrawn availability of nearly $350 million under our revolving credit facilities. On slide five, we summarize our Peru operating results. During the quarter, copper production was 22,856 tons, a 26% increase over the third quarter due to an increase in throughput, grades, and recoveries. This was another record quarter for gold production in Peru. Full year 2021, copper production increased by 6% year over year to 78,000 tons, achieving the annual guidance range. Full-year 2021 gold production increased by 306% year-over-year to over 50,000 ounces and exceeded the 2021 guidance range due to increased throughput, higher grades from Pampacantia, and higher gold recoveries. Total ore mines during the fourth quarter increased by 19% from the third quarter as mining levels were optimized for mill throughput. Ore mills during the fourth quarter was 15% higher than the previous quarter, while milled copper grades were also higher due to higher grades from the Constantia pit in the quarter. Unit operating costs in the fourth quarter were $10.47 per ton, a 10% improvement over the third quarter. COVID-related costs in Peru were $4 million in the fourth quarter, and excluding these costs, unit operating costs were $9.96 per ton. Full-year unit costs were higher than 2020, and the guidance ranged due to higher costs for consumables energy and COVID-19 measures. Peru's cash costs in the fourth quarter were $1.28 per pound of copper, relatively in line with the prior quarter. Sustaining cash costs increased quarter over quarter, primarily due to higher capitalized expenditures. Peru's fourth quarter production and cash cost performance was strong and represented the best copper production quarter in 2021, as seen on slide six. Not only did we achieve our 2021 guidance expectations, but we also demonstrated our mine development and operating expertise as we successfully ramped up the Pampa Concha mine and delivered on our plan in Peru. Moving to the next slide on Manitoba, during the fourth quarter of 2021, gold production was 46,424 ounces, an 11% increase from the third quarter due to the ramp up at New Britannia, Copper production was 5,342 tons, slightly higher than the third quarter. Full-year Manitoba copper production achieved 2021 guidance. However, zinc, gold, and silver production for the year fell short of guidance. Zinc production was predominantly impacted by higher-than-planned dilution at 777 as the mine nears the end of life. Gold and silver production were below guidance. primarily due to higher dilution at 777 in the fourth quarter and the deferral of some higher gold content ore for future processing at New Britannia to achieve higher gold recoveries. Mining operations at Laal Ore have fully established processes to consistently produce and separate the gold and copper gold ores in feed for the stall and New Britannia mills. A production ramp-up strategy to achieve 5,300 tons per day at Lalor by the end of 2022 is underway. That includes advancing development for new mining fronts, additions to the mine equipment fleet, transition of workforce from the 777 mine upon closure, and expansion of change house and office facilities. The 777 mine is within months of closure, and the focus continues to be on safely mining out the remaining reserves by completing the necessary ground rehabilitation to access remnant and pillar stoping blocks. Challenging ground conditions have caused delays in the production sequence and resulted in higher dilution than planned, as mentioned earlier. Combined units operating costs in the fourth quarter increased by 14% compared to the third quarter, primarily due to higher milling costs in Snow Lake with the ramp-up of the new Britannia mill in the quarter partially offset by higher tons processed. Full year unit costs were within the guidance range. Manitoba's cash cost per pound of copper in the fourth quarter was negative $2.77, lower than the third quarter. Similarly, sustaining cash cost per pound of copper in the fourth quarter was negative $0.23, lower than the third quarter, primarily due to increased gold revenues. We intend to disclose cash cost per ounce of gold starting with first quarter results in 2022, given gold revenue is becoming the most significant contributor to total revenue in Manitoba for the foreseeable future. As I mentioned earlier, the construction of the new copper flotation facility at New Britannia was completed in October 2021. The New Britannia mill achieved commercial production on November 30th. after reaching the required recoveries and throughput in the copper and gold circuits. During the fourth quarter, New Britannia processed over 100,000 tons of ore, averaging over 1,100 tons per day. In December, the New Britannia mill throughput averaged 1,200 tons per day, with gold and silver recoveries in line with the metallurgical model. A number of initiatives are underway to continue to improve the mechanical availability of grinding, leaching, and tailing circuits. The New Britannia mill is expected to average 1,500 tons per day in 2022, with continued ramp-up activities and rod mill liner maintenance expected during the first quarter, and targeted throughput rates are expected to be achieved in the second quarter. We are pleased with the performance of New Britannia, and as shown on slide 8, the mill has steadily increased throughput rates since commissioning. Its ramp-up achieved best-in-class timelines as represented by widely recognized industry plant ramp-up curves. The mill has seen several days operating at or above design rates and is expected to achieve sustained design throughput within six months from commissioning. This included a one-week ramp-up of the new copper flotation circuit, which was remarkable by industry standards. I frequently say that we have a disproportionately talented team for a company of our size at Hyde Bay, and the completion of the New Britannia project was yet another example of the strong technical capabilities of our team. Slide 9 is a compelling slide as it illustrates the inflection point at which we are in terms of increased copper and gold production. 2022 represents the first of many years of meaningful production growth with consolidated copper production expected to increase by 17% compared to 2021 and consolidated gold production expected to increase by 28% in 2022. Consolidated copper production is expected to further grow to 133,500 tons by 2024, a 34% increase from 2021 levels. Similarly, gold production is expected to increase to over 300,000 ounces in 2024, which represents an increase of 59% from 2021. This is expected to lead to growing EBITDA and expected future cash flows after completing approximately $250 million in our brownfield investment programs. We are a primary copper producer with unique complementary exposure to gold, and we believe our high-quality pipeline of attractive development and exploration opportunities will further add to this growth. A key focus for HUD-Bay is our Copper World project in Arizona. After the initial discovery in early 2021, we completed an aggressive drilling program which led to an initial resource estimate in December 2021 that is larger and at a higher level of geological confidence than we expected at this stage. The initial resource estimate included indicated resources of 272 million tons and inferred resources of 142 million tons at 0.36% copper. We also successfully expanded our private land package after the Copper World discovery and now hold over 4,500 acres to support an operation entirely on private land, which is outlined on slide 10. One of the many attractive characteristics of Copper World is the near-surface nature of the deposits with the potential for minimal waste stripping. The global resource contains a higher-grade zone with indicated resources of 96 million tons at 0.57% copper and inferred resources of 31 million tons at 0.71% copper, as outlined on slide 11. The high-grade resources expected to be mined earlier in the mine life comprises both sulfide and oxide mineralogy and is potentially amenable to both flotation and heap bleach processing methods. We continue to drill at site with six drill rigs currently turning to conduct infill drilling in support of future economic studies. The PEA for Copperworld is well advanced and we are on track to publish the results in the first half of 2022. While we continue to await a decision from the Ninth Circuit Court of Appeals relating to Rosemont, we are also evaluating the potential synergies between Copperworld and Rosemont and our preliminary expectations will likely be reflected in the upcoming PEA. Our exploration efforts don't stop in Arizona. As highlighted in slide 12, we continue drilling and scoping studies to evaluate the underground potential at Constantia Norte in Peru, and the results are expected to be incorporated into the annual mineral reserve and resource update for Constantia in March this year. We are also continuing to progress exploration agreement discussions with nearby communities on prospective properties located near Constantia. Drilling continues at the Yagen copper porphyry target located in northern Peru. The confirmatory phase of the drill program has totaled over 7,000 meters in 16 holes with two drill rigs continuing to turn at site. Assay results have been received for five holes with all holes intersecting mineralization. Pending positive results from this initial drilling phase, a second phase will focus on defining an initial inferred mineral resource estimate for Yagen in the third quarter of 2022. In the Snow Lake area, we are actively conducting surface and underground winter drilling activities, primarily focused on testing down-plunge extensions of the copper-gold-rich feeder zone at the 1901 deposit, the drilling gap between 1901 and Lens 17 at Lalor, and a high-priority geophysical target located immediately north of Lalor. In addition, we continue to compile drilling results from the 2021 program at Lalor and 1901 which are expected to be incorporated into the annual mineral reserve and resource estimates to be published at the end of March. Earlier this year, we commenced a confirmatory drill program on the tailings facility in Flin Flon to support the completion of a PEA on the tailings reprocessing opportunity by the first quarter of 2023. We are also completing engineering and test work throughout 2022 to support the PEA. If economics, This opportunity could utilize the Flin Flon Concentrator with modifications after closure of the 777 mine, creating operating and economic benefits to the Flin Flon community. It could also provide the opportunity to redesign the closure plans, increase metal production, defer or reduce certain closure costs, and reduce the environmental impacts of the tailings facility. Slide 13 highlights the three-year production outlook I mentioned earlier. and includes production by business unit and by metal. The meaningful three-year production growth is due to the increase in copper and gold grades expected at Pampa Cancha in Peru and the increased gold production from the Slow Lake operations over the next several years. This growth is expected to more than offset the lost copper and gold production from 777 after its closure in mid-2022. Peru's mine plan has been re-sequenced since the publication of the March 2021 Constancia Technical Report, resulting in higher gold grade areas in the Pampacuncha pit being moved from 2022 to 2023, which is expected to lead to a 41% increase in gold production in 2023 from 2022 levels. Manitoba's 2022 production guidance reflects continued strong production from the Lalor mine operating at a throughput rate of 4,650 tons per day and ramping up to 5,300 tons per day by 2023. 2022 production assumes lower mining rates at the 777 mine as the mine approaches closure in June 2022, and the low end of the production guidance ranges reflects reduced output from the 777 mine to capture the potential for higher dilution and increased variability in remnant stopes. The low end of the 2023 production guidance range reflects a more conservative project start and ramp up of the store recovery improvement program. The production numbers exclude the impact of upside opportunities such as the potential to operate New Britannia above design capacity. Slide 14 summarizes our cost guidance for 2022. Total capital expenditures are expected to decline by 17% compared to 2021, primarily due to lower expected sustaining capital in Peru and lower growth spending in Manitoba in 2022. The growth capital guidance includes $10 million on continuous improvement initiatives in Peru and $50 million on enhancements and expansions as we execute growth in Manitoba. We have also allocated $35 million to growth spending in Arizona, higher than previous years, as we advance permitting and economic studies at Copper World in the first half of 2022. We may allocate additional capital to Copper World in the second half of the year, pending positive PEA results. Total expected exploration expenditures of $65 million in 2022 reflect continued exploration of Copper World and additional drilling activities for brownfield exploration and to test the promising targets in Peru and Manitoba that I highlighted earlier. We also plan to conduct an initial drill program at the Mason Valley SCARN properties in late 2022. We're introducing cash cost guidance in 2022 for each of our operations. including copper cash cost guidance in Peru and gold cash cost guidance in Manitoba. We continue to provide combined mine mill unit operating cost guidance by site and consolidated copper cash cost and sustaining cash cost guidance given copper remains our primary metal on a consolidated basis. In Peru, combined unit costs are higher in 2022 versus 2021 as a result of higher consumable costs including grinding media and fuel, higher mill maintenance costs due to general cost pressures seen in the industry, and the impact of processing harder ore in the Constantia pit. Copper cash costs in Peru are expected to decline in 2022 compared to 2021 due to higher gold byproduct credits and higher copper production. In Manitoba, 2022 combined unit costs are forecast to be higher than 2021 levels, primarily due to the expected cost inflation on materials and consumables and the inclusion of the new Britannia mill, which is expected to result in higher milling unit costs compared to the Flin Flon and Storr mills as disclosed in the Snow Lake Operations Mine Plan released in March 2021. Manitoba unit costs also reflect the closure of the 777 mine in June 2022, and the transition of a portion of the workforce to Snow Lake. Gold cash costs in Manitoba are expected to be $300 to $550 per ounce in 2022 as gold production increases year over year and the operations transition to becoming a majority gold producer. The midpoint of our consolidated copper cash cost guidance range is higher than last year's levels due to the expected increase in unit costs as mentioned. partially offset by expected higher copper production and higher gold byproduct credits. The midpoint of the guidance range for consolidated sustaining copper cash cost is lower than 2021 levels due to lower sustaining capital expenditures and higher copper production, partially offset by the increase in unit costs. Slide 15 summarizes our near-term copper production growth and our high-quality organic copper pipelines. We believe that copper has the best long-term supply demand fundamentals in the sector as global copper mine supply will be unable to meet demand from global decarbonization initiatives. We have the highest near-term copper production growth and the highest leverage to copper among our mid-tier base metal peers. And we have successfully increased our copper equivalent resources per share by more than two and a half times over the past 10 years. For these reasons, we believe HudBay is uniquely positioned to offer attractive copper production growth and long-term optionality for investors. To summarize, we are a diversified mid-tier copper producer as shown in slide 16. Our existing operations offer 17% copper production growth in 2022 and a leading low-cost profile which is expected to generate significant near-term cash flows. We also have a world-class organic growth pipeline, offering medium to long-term copper production optionality. As you've seen through this presentation, with the recent execution of our brownfields investment programs, we are now in a position to deliver meaningful copper and gold production growth to generate positive cash flow and strong returns on invested capital. We will continue to unlock value in Arizona through accelerating drilling, economic studies, and permitting activities at Copper World and identifying synergies with Rosemont. In Snow Lake, we plan to execute the third phase of our Snow Lake Gold Strategy by optimizing the new Britannia mill, preparing for the ramp-up to 5,300 tons per day at Laalor, and initiating the stall mill recovery improvement program. In Flin Flon, we are focused on transitioning the 777 mine, mill, and zinc plant through orderly closure while further exploring the potential to reprocess tailings. In Peru, we will continue to progress Constantia's leading efficiency metrics by applying smart technologies to continuously improve operating performance, including sensor-based ore sorting and milling flow sheet enhancements. We also aim to reach a community agreement to explore the prospective properties near Constantia. We will continue to conduct targeted brownfield and greenfield exploration programs in the Snow Lake region, Peru, Arizona, Nevada, and Chile for new mineral discoveries. We also look to enhance our ESG objectives through the introduction of new greenhouse gas emissions reduction targets in 2022. And finally, we will remain vigilant in evaluating growth opportunities that meet our stringent strategic criteria that will create sustainable value for the company and our stakeholders. And with that, we are pleased to take your questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then 2. We will pause for a moment as callers join the queue. Our first question comes from Orest Waukadaw of Scotiabank. Please go ahead.

Hi, good morning. A question about your cost guidance in Manitoba for 2022, $170,000 to $185,000 Canadian ton. Certainly we've seen a big step up there in cost relative to previous years. Can you please speak to how much of that is inflation versus some of the structural changes happening there with the closure of 777? Because I'm just trying to understand how to think about those costs beyond 22, whether there's just a bump here on a single year basis or whether that's a kind of a new run rate on a longer-term basis with LAYLOR and NUBRIT?

Certainly, Orson. Good morning. Thank you for that question. Look, so what I would say is that the 2022 unit costs do reflect the current cost environment, and they include the impact of several factors, such as the integration of the higher cost NUBRIT annual and higher cost at 777 as we approach closure and reduce the output. So, you know, These are transition costs, and there is certainly potential to eliminate those transition costs. But there are some embedded costs that relate to some of the increases that we're seeing in the environment currently. I do believe, though, that we will over time be able to eliminate some of these transition costs. And especially, you know, I think we've indicated that we have a fairly large component of contract labor at LALOR. As we transition from 777 to LALOR, we should be able to eliminate some of the contracted workforce and thereby reduce costs. So I would say that, yes, some of it is embedded and some of it is transitionary costs that we will see over the course of the next year. But there certainly is opportunity to improve on those costs. Okay.

And then as a follow-up, if I may, just wondering kind of big picture, I mean, this 2022 should be an inflection point for HUD-BAY with respect to generating positive free cash flow. I'm just wondering, you know, how you're thinking about the next couple of years, whether you've got a certain debt reduction target in mind before you might embark on the next, call it Greenfield project, whether that be Copper World or Rosemont or something else.

Great question. I think we remain very, very focused on net debt reduction. As you know, we are unable to pay back our debt over the next couple of years, but we certainly target net debt reduction as we advance towards some of the opportunities ahead of us. I think I've always said that over time we aspire to be reliable, consistent dividend payers, And that remains front of mind for us. But in the interim, there are a lot of competing opportunities that we need to keep our eye on. But net debt reduction, as we improve our cash flows, certainly is probably priority number one.

Okay, but no specific targets. Steve?

Sorry, Harris. No, and I think we've talked about this before. We look at over the course of the cycle, we look at our risks, we look at how it is we're investing our capital and what the structure of that debt would be. I'd also point out that this year, we are going to deliver the tune of just under $100 million by virtue of the initial repayment on the gold prepaid. So we are focused, I mean, you're looking at that cash will come out, but it is going obviously to a capacity perspective because of the pay down of the debt. So yeah, I mean, Peter's absolutely right. In the long run, I mean, we would want to obviously more structurally address our debt levels in the context of what our cash flows would be given the opportunities to continue to invest and expand the business. But I think your characterization of looking forward over the next couple of years to that next big development for us remains the priority as we've discussed before. And I think right now our cash flows and our debt levels remain very manageable relative to what we're looking at doing in that regard. And We will tick up ultimately, but I think we'll be a few years away, and we do have time to, as you pointed out, reap the benefits of these investments and the cessation of these heavy investments in New Britain and Pampa Concha, and really move towards, hopefully, a stronger cash-generating period.

Thanks. Thank you. It's in John's voice.

Our next question comes from Dalton Barreto of Canaccord. Please go ahead.

Thanks. Good morning, everybody. Peter, I want to start by asking you about Copper World. You've talked a lot about some of the drilling work that's going on there. I'm wondering if you can give us an update in terms of what you're seeing in terms of some of the metallurgy work that you're doing ahead of the PEA. Thank you.

um morning doctor thank you for that and i you know i frankly i think this is just a great question for andre to sort of make his debut so i'm going to turn it over to andre sure yeah thanks for the question dalton so copper world is it is a unique deposit there's a there's a variety of different mineralization styles there's copper sulfide which is very very typical metallurgy to what we've we've tested and studied at rosemont and we've We validated that testing with recent studies. There's a mixture of oxides that we also have, and there's two different types of oxides that we're seeing. Some of the oxides are the more traditional oxides that are related to porphyry, which are low acid generating type of sulfides or oxides that are beneficial for heap leaching technologies. And we also have some oxides that are a little bit stronger on the acid consumption where they're more related with some limestone. And so we're doing column leach tests as we speak and learning more about the different types of mineralizations and how they recover and also the times to achieve those recoveries for possible leaching as well as milling. And those will be reflected in the PEA as we look to release that in the second half.

Okay, great. Thank you for that. Just as a quick follow-up, do you have a sense for the split then in the oxide, just in terms of the high-acid consuming stuff versus low-acid, just given where asset prices are today?

So, as Peter mentioned in the original sort of dialogue, we do have enough land for a private land plan. And so the good news, I think, is we've been finding a lot of material. And so the split between oxide and sulfide, will become an economic decision around the amount of material we can place on our private land. As we continue to find more and more material, obviously we need more land, but the actual split is the optimization we're going through right now is to figure out what is the right mixture that's going to make us the most money.

Okay, great. Sorry, my question was actually around the split in the oxides between high asset consuming and low asset consuming.

Again, so high-acid consuming is obviously higher cost, and there's low-acid consuming, and we also have sulfide. And all three of those will take up tailings capacity and heap leach capacity. And so the split on what we choose to mine will be an economic decision, so that the split between the high-acid and low-acid is a number that's currently being analyzed right now. So that hasn't been finalized at this point.

Understood. Okay, thank you. Maybe switching gears to Manitoba, and maybe this one's for you as well, Andre. When we were on the site visit in November, there was a lot of talk about kind of the next leg pass phase, specifically around moving new bread to 2,000 tons per day through deep bottlenecking and running the whole operation at 5,800 tons per day. There was also talk around moving 1901 forward by 12 to 18 months. I'm just wondering, you know, has there been any progress around that? And, you know, are you expecting to put out a technical report maybe this year or early next year that crystallizes a lot of this opportunity?

Sure. So you talked on quite a few different points there. So maybe if I start with 1901. And so the 1901, we do have $5 million in our capital growth budget for this year. And we anticipate doing studies concurrent with driving development. towards it later in this year. And the potential for that is to bring first orb ahead up to as much as one year ahead, so around 2025-ish. In terms of the throughput at New Britannia, we're very, very pleased. Year-to-date, we've achieved 1,500 tons per day, and we're seeing days where we exceed that and up to 1,700 tons per day. I don't believe we've seen the 2000s quite yet, but it's early days. But there's definitely upward possibility on throughput at New Brits and future opportunities.

Okay, thank you for that. And maybe I can wrap up, Peter, by asking you a question. In your closing remarks, you talked about evaluating opportunities using your stringent strategic criteria, I think you said. Can you give us a sense of what that strategic criteria is and how you know, what sort of stuff you're looking at? Thank you.

Dalton, more than anything, it has to be accretive, whatever we do.

And so when I talk about opportunities, I'm not talking necessarily about organic or inorganic opportunities. I'm talking about the whole gamut. And the key is that they make sense for us and that they're accretive to our shareholders. So, you know, if you look at inorganic opportunities, there are very few of those around. And so we don't spend a lot of time thinking about it, but we do take a look at whatever comes our way just in case. But our criteria, we have just effectively one single criteria. We want more copper, and it has to be accretive to our shareholders.

So as I've always said, we are not about to ever do anything stupid.

Thanks, Peter. That's all for me. Thank you, Dalton.

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

Thank you. This is probably another question for Andre on Copper World. When I look at the map, Andre, of the property boundaries and where all the pits are for Copper World, they do seem to butt up against the property boundaries on the private land. Is that going to constrain you in any way when you look at mining these various deposits?

Great question, Greg. I think the short answer is yes, there are constraints. There's many constraints, whether it's around the property boundary and air permitting. The good news, I think, is we continue to find more material, and we've found a large tonnage on our private land, and some of the pit designs do have the opportunity to extend beyond our private land for later extraction. Our focus right now is looking at what we can extract on our private lands under a different, if you will, permitting regime. And that material that does extend beyond the private land limits would be a later phase of mining that we would look to, similar to how Rosemont went through that, their permitting process.

So where do you think you start mining then? Is it Fraud, Top Butte, and Balsa, or the other end?

That's a complicated question. So So we've gone through, probably over the last month and a half, a number of iterations, and it's all about the strip ratio and grade, and like Dalton's questions as well, previously around the acid-generating, or sorry, the acid-consuming oxides and prioritizing based on value. So Broad Top Butte is a wonderful deposit. So is Valsa. also has very low stripping and very low acid consuming. The work that we're doing right now is trying to figure out with the roads on how we would transverse to each of the different deposits and the timing of the filling and the sequence. It's not as straightforward as running to Broad Top because that's basically right at the top of the mountain, but that'll all be in the PEA. and we'll have the optimal design when that comes through. We'll release that later on and have to.

Andre, do infrastructure like roads and other infrastructure like that have to stay on private land in this scenario? Can you do some of that surface work on federal land?

No. You can't do it on federal land. All of our activities are constrained to private land, and You know, later on, once we, you know, there's always the opportunity to do the same process as Rosemont. Much later, you go through a federal permitting process. But our main intention is to make sure that all of our activities are all constrained with the limits of our private land.

Peter, just for you, you mentioned Mason a couple of times in your presentation, and you're going to be drilling there later this year by the Sabbath. Thank you. thinking about pulling that forward? I know when we've talked about this in the past, it was always that's next cycle, late 2020s, early 2030s, but are you considering some way of pulling that forward or not?

That's a fair question. I think that we'd love to. In short, we'd love to. I mentioned in my comments that we'll be doing some drilling at Mason Valley later on this year, but we're doing a lot of front-end work on the softer side of things so that we can lay the groundwork to be able to proceed in a manner that is much smoother than that which has been experienced by many companies trying to obtain federal-level permits in the United States. So the very short answer to your question is yes, we would like to, but we're going to be deliberate about how we go about it in our engagement with the various stakeholders to smoothen the path.

Okay. Thanks, Peter. Thanks, Andrej.

Once again, if you have a question, please press star, then one. Our next question comes from Stefan Ioannou of Cormark Securities. Please go ahead.

Thanks very much, guys. Just further on the copper world, obviously the resource is relatively fresh, but just wondering, are you guys seeing any sort of low-hanging fruit for near-term resource additions? I'm just wondering, in terms of the PEA, is that resource envelope that you have defined so far... Should we do that as a snapshot in time, or is that pretty much all the low-hanging fruit to be had? And maybe from a different angle, just again, looking at those maps, obviously, like we talked about, it's a fairly constrained footprint, but there are some big pieces of land to the northwest that you have on private ground, like open spaces with no pits on them yet. Should we view that as exploration upside land, or is that more land that we should view as infrastructure placement areas? And have you done enough condemnation drilling to really figure out how you're going to fit this all together?

Okay. You had a lot of questions there. So in terms of the resource, so the resource that we did quote in December is a snapshot in time. So we continue to explore and expand the resource from BALSA to Rosemont and continue to see positive indications that it's going to connect all the way through. In a similar note, from Balsa to Broad Top, that area remains to be explored, and areas between Copper World and there's what they call the Omega Mine, which is just to the south of Copper World, still on our private land, we continue to explore those areas. So to your first question, I'd say that the resource was a snapshot, and there's further additions on our private land that we we continue to expect to find. In terms of the constrained footprint, it's very astute. Yes, it is. It is very constrained, and there are parcels of land that are not connected. And when we started this process, most weren't connected at all. And so our process where we went through with acquiring lands actually connected most of what we call the Helvetia area into a meaningful tailings facility. And so those areas, we have done drilling in most of those parcels, in part for hydrology drilling for future permitting, and so they have been condensed. So there are for future facilities and the like.

And when I look at the map, that's sort of those big sort of blocky things to the northwest, the one that looks like an F and the other piece.

Correct.

Okay, great.

Perfect. Thanks very much, guys.

Our next question comes from Pierre Van Court of Haywood. Please go ahead.

Hi, Peter. I just wanted to ask, with the growth in cash flow, certainly in the context of a share price that really hasn't done much in the last year or so, Any thoughts on, you know, what you can do to, you know, try to reward shareholders, whether through dividend policy or share buybacks, or is the focus uniquely going to be on, you know, reducing the debt and where do you want to get debt down to if that's the case?

Morning, Peter. Thanks for that. Look, I think as I mentioned earlier, paying dividends, whether they are regular or special dividends over the medium term certainly remains aspirational for us. We want to do that.

But we also want to make sure that we are able to avail ourselves of the organic opportunity set that lies ahead of us because We have a real conviction around copper.

We do believe that copper is headed upwards from here, and we want to have as much exposure to it as possible. We want to have that exposure for our shareholders. So it's a balancing act in a sense. On the one hand, do we look after some short-term rewards at the expense of the longer-term optionality? And we asked ourselves that question every day.

And so far, the question has been that we would like to preserve some of the cash flows ahead of us in order to avail ourselves of the opportunity set in front of us, especially an opportunity such as Copper World.

But Steve, would you, is there anything you might add to that?

No, 100%. Well, a little bit, perhaps. Look, we're very deliberate by, we evaluate all options as it relates to our cash. And When we run out of options in terms of investing and what we think de-risks and really does a lot to enhance the security and stability of our cash flow over the long run, once we get that level set by virtue of that next phase of development, we want to absolutely take a hard look at a sustainable dividend throughout the course of a cycle. But in the meantime, we absolutely – I couldn't agree more with Peter. We see – We see far greater returns in a long-term major contributor like a Copperworld and hopefully eventually a Rosemont versus just sort of trying to engineer a shorter-term gain for us. But we are laser-focused on increasing the – de-risking the company and taking a lot of those projects. In our view, it's going to be developed and hopefully developed by us.

So what would you like to get the debt to? What's your objective there?

Well, look at us today. Net debt to EBITDA, we're in around two or less, depending on pricing. We've got term. We've got the ability to – now we've done the revolver. I think over the long term, a sustainable level of debt for us would probably oscillate somewhere between – One and two, I do believe debt has a place in a balance sheet. It does provide higher leverage returns. Structure matters, and we pay attention to all those things, I think, as you would have seen by virtue of us laddering the maturities the way that we did. So ultimately, I'm not a fan of our target level would be X. I'll give you a range, as I say, and it could tick up much higher depending on what it is we're buying. But we'll look to that with a glide path. to pay it down once we get the development done. So, you know, I know I'm kind of being evasive on giving you a hard number, but I think it's a number that we look at through the cycle and a number that we look at through our options. And, you know, someday I aspire to zero that debt because we've made so much money on our investments that we got cash just looking for the next dividend payment or looking for the next accretive deal for ourselves.

And just lastly, so On the subject of spending, I mean, can you give any view on what you will be dedicating to Arizona? I mean, assuming things happen, you know, as expected, you get a positive TA. You've laid out what the expenditures are this year. How does that, can you just give some kind of view on how that ramps up be on to 22 or is it too early at this point?

I think it's a bit early at this point, but what I would say is that the expanding that we would envisage in the second half of the year would be related to conducting a preliminary feasibility study. We've done a fair amount of infill drilling already. There might be a little bit more infill drilling, but it would be not at extreme levels.

Okay. Thanks, Peter.

Our next question is a follow-up from Dalton Barreto of Canaccord. Please go ahead. Dalton Barreto, your line is live.

Hi, I'm sorry. I was on mute there. Thanks for taking the follow-up. I've got a couple as they relate to the Arizona assets. Peter, if you get a positive decision on Rosemont, how does that play into... how you're thinking about Copper World?

That's actually a really interesting question because the interplay between Rosemont and Copper World is, of course, very interesting to us.

But I think perhaps the most important consideration is that a positive decision does not simply release us to start work on Rosemont because there are some outstanding issues that have to be decided by the court.

And one is that the biodiversity or biological opinion needs to be decided on at the Ninth Circuit as well. So until that is done, we're kind of not free and clear. But in the meanwhile, we are absolutely free and clear to start looking at the synergies between the two projects.

So if we were to get a decision next week, it would still take some time. before we could hit the ground on Rosemont.

And it's difficult for me to say exactly how long it would take, but there's other things we would need to revalidate.

The estimate, as I've said before, we would, especially in the context of the price environment that we're seeing. We'd need to incorporate some of the advancements that we've contemplated over the past couple of years in the technological and technical sides.

We would also want to seek a partner, as we'd said before, and all of those things would take time, too, as would the sorting out the other legal issues that remain to be completed.

Okay, and then the second thing I wanted to ask you on that kind of combination is, if you include Rosemont in the PEA scenario for Copper World, does that run the risk of attracting the attention of your environmental friends?

Andre, do you want to address that?

Sure, sure. It's an interesting question. So, I think we have the interest of the environmental crowd. So they're acutely focused on all of the activities that we're doing. So I think your question around integrating or synergies with Rosemont, our main focus with Copper World is all about a private land plan, which is a different framework, if you will, for opponents to try to attack and And so what I would say is that what we like about the private land plan, whether it has synergies with Rosemont or whether it's all Copper World or some version of whatever it may be, it's much more straightforward. The permitting regime is very much around air limits and water limits. It's very clear cut. And so we feel very comfortable about that and and feel that regardless of the synergy, in my view anyways, that it doesn't make it worse. I think it's actually better.

Okay, and then maybe one last one for me, and I'll wrap it up there. It's my understanding that the Copperwell deposits are also covered under the Whedon Agreement. Can you guys confirm that that is the case and how that factors into your thinking around the PEA? Okay.

Eugene, do you want to respond to Dalton?

Hi, Dalton. That is correct. The cop world properties are covered by the Wheaton Agreement, and they are aware of it. The Wheaton Agreement, the last iteration really revolves around RP16, the last feasibility study, and we will work with Wheaton as we continue to work on the feasibility study to update the agreement to reflect what copper will be. But we've worked with Wheaton in the past and come to a successful resolution that was beneficial to both parties, and we expect that we will do so again with Wheaton going forward.

That's great. Thank you, guys. That's all from me.

You're welcome.

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

Hi, guys. Good morning. Thank you for making the time for me here. First, on Rosemont, sorry to ask about it again, but under the prior administration, there seemed to be a keen advocate in your legal fight with Rosemont from the U.S. government. Does that same level of support exist with the current administration? And has the U.S. government stance as an appellant in the Soto decision changed in any way?

Thanks for the question, Lawson. Good morning to you as well. Look, I'll take the kick of that, and then Andre may want to expand on it. But the position that the Department of Justice is taking in that doesn't make any difference because we've all made our oral arguments, and those were made in February of last year. So there is no interplay between us and the court. It's simply a matter of the court rendering its decisions. And so regardless of what the Biden administration may think versus the Trump administration, it has no bearing on the decision ahead of us.

Yeah, that's super helpful. I appreciate you clearing that up. On your copper production profile, obviously you guys have absolutely fantastic copper production growth through 2024. I'm just curious, what are your top options for maintaining that copper production profile into 2025, so beyond 2024?

I think, you know, obviously a key element of it will be the outcome of the work that we've done in Constantia Norte and how we would access the underground portion of that deposit to the north of Constantia. And then there's a lot of recovery and technological improvements that we're looking at. But Andre, do you want to comment any further on that?

There's a multitude of process of improvement projects that are in our pipeline to improve recovery, as you say. And the ore sorting that we're looking at, we're trying to better understand and remove dilution and prevent copper from going to our waste pile and through the grid. So there's a lot of things in the pipeline and there seems to be a steady stream of improvements along the way that it will improve our copper recoveries.

Okay. And so you're eyeing those as options to at least maintain that 2024 level. I assume Constantia Norte would probably be the biggest one there or you know, is, is potentially there's something really big there with the ore sorting and some of the other initiatives.

Certainly would be the, the, have the biggest impact. Great.

And then just one final thing. Great to see the greenhouse gas reduction target as an objective for 2022. At this point, where do you see the low hanging fruit for, for reductions, particularly over the next sort of like five to 10 years? That's it for me. Thanks.

Lawson, that's the work that we're engaged on right now.

So, in fact, what we have done is we have a task force put together, assembled over here at HUD-BADE, to address exactly where the low-hanging fruit is so that we can establish those targets this year.

But we'll be in a much better position later on in the year to comment as we've gone through some of the work that lies ahead of us.

Thanks very much.

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

Thank you, operator, and thank you, everyone, for participating today. Please feel free to reach out to our investor relations team if you have any further questions. This concludes our call, and you can now disconnect your lines.