This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk05: ladies and gentlemen and welcome to the capstone copper q2 2023 results conference call at this time all lines are in a listen-only mode following the presentation we will conduct a question and answer session if at any time during this call you require immediate assistance please press star 0 for the operator this call is being recorded on wednesday august 2nd 2023 i would now like to turn the conference over to gerald annette Please go ahead.
spk15: Good morning. I'd like to welcome everyone to Capstone Copper's Q2 2023 conference call. Please note that the news release and regulatory filings announcing Capstone Copper's 2023 second quarter financial and operational results are available on our website and on CDAR. If you are logged into the webcast, we will advance the slides of today's presentation, which is also available in the investor section of our website. I'm joined today by our CEO, John McKenzie, our President and COO, Cashel Marr, our Chief Financial Officer, Raman Randhawa, and our Senior Vice President, Risk, ESG, and General Counsel, Wendy Kink. Following our brief remarks, there will be an opportunity for questions. Please note that the comments made on the call today will contain forward-looking information within the meaning of applicable securities laws. This information by its nature is subject to risks and uncertainties, and actual results may differ materially from the views expressed today. For further information on the risks and uncertainties pertaining to our business, please see Capstone's most recent filings, which are available on our website and on CDAR. And finally, I'll just note that all amounts we will discuss today are in U.S. dollars, unless otherwise specified. Now I'll turn the call over to John McKenzie.
spk09: Thanks, Gerald, and good morning, everyone. We're pleased to present our second quarter 2023 results and achievements. Turning to slide five, we're pleased to report that construction at our transformational Monteverde Development Project, or MVDP, remains on time and on budget. We have over 4 million tons of sulfide ore stockpiled to date at an average copper grade of 0.63%, ready for our ramp-up that will commence by the end of this year. Both on the slide provides an overall view of the new sulfide concentrator, showing the primary crutcher in the back left, the covered core source stockpile dome in the middle, and the grinding flotation and filtration in the center. This year is pivotal for Capstone, as we expect to complete the MVDP construction by year end, setting the stage for a doubling of consolidated cash flow and positioning us well for our organic growth pipeline. Turning to slide six, From an operational standpoint, we experienced a challenging quarter in Q2 marked by unplanned downtime at our Pinto Valley mine in Arizona and continued debottle making at Montes Blancos in Chile. As a result, we produced a total of 39.3 thousand tons of copper at consolidated C1 cash costs of $3.01 per payable pound of copper produced. In addition to these challenges at Pinto Valley and Montes Blancos, Production at Monteverde was impacted by a planned plant shutdown for an electrical tie-in of the MVDP. On a positive note, Cozumel had an excellent quarter as the mine has now ramped up to full production levels with the new cut and fill mining method. Although our costs were elevated in Q2, a large portion of this is a reflection of our weaker production levels rather than underlying cost pressures. We're encouraged by some of our input costs that are trending lower. which we'll discuss in more detail in a few slides. Turning to slide seven, we provided H2 2023 guidance to provide more clarity on our operations following the slow start to the year. At Pinto Valley, we expect higher grades and no scheduled major maintenance in H2 to drive stronger production levels and lower costs. At Cozumel, we anticipate a continued strong performance in the back half of the year. At Montes Blancos, we've moderated our expectations, but we expect reduced downtime to lead to more consistently higher throughputs in H2. And lastly, at Monteverde, we anticipate higher oxide production in H2 as a result of higher irrigation rates with the expanded desalination plant for the MVDP. We have reiterated our previous 2023 capital guidance. Now I'll pass over to Raman for our financial results.
spk14: Thank you, John. We are now on slide eight. In Q2, we recorded copper sales of 40.8 thousand tons, which includes a sales catch up on the prior quarter due to the timing of shipments in Chile. LME copper prices during Q2 averaged 384 per pound, down 5% compared to 405 in Q1 2023. Our realized copper price of 371 per pound was slightly below the LME quarterly average due to the timing of QP hedges, which provides month-after-shipment average prices. Based on current off-take contract structure, this mechanism works best for us. As a result, we recognize revenues in the quarter of $334 million. Realized copper prices, including the impact of copper hedges, result in a copper price of 361 a pound. Our elevated costs on a per pound basis in Q2 were denominator driven, as John mentioned. We have seen relief on some of our key inputs, including sulfuric acid, diesel, and power costs, which are cold indexed in Chile. The largest input cost, sulfuric acid, which peaked in 2022 at over $250 a ton, averaged $158 a ton in the first half of 2023. Moving forward, we expect to release $20 a ton lower in H2. And this lower trend is continuing into early 2024, where we have secured contracts at sub $100 a ton. With mantle verde sulfides ramping up in 2024, our oxide production and hence acid consumption will be a lower overall portion of our cost base. The lower spot sulfuric acid prices should still bode well for our business. Ocean freight, for example, Copper concentrates from West Coast Mexico to Asia have declined from a peak of over $80 a ton in 2022 to just under $40 a ton in June. Additionally, slot diesel prices in the U.S. have declined from slot prices of over $5 a gallon last year to the mid $3 per gallon range. Furthermore, we have labor agreements in place at all of our operations for the next three years, providing additional cost certainty. Turning to adjusted EBITDA, in Q2 of $43.4 million was impacted by lower production and higher maintenance costs incurred as a result of unplanned downtime, Pinto Valley, and Mentos Blancos. The difference between LME of $3.84 per pound and our realized price, including hedges of $3.61 per pound, translates into approximately $15 million impact after tax for $0.02 per adjusted EPS. Moving on to slide 9. On the left-hand side, we summarize our available liquidity, which as at June 30th was approximately $420 million, which includes $118 million of cash in short-term investments and $302 million of undrawn amounts on our $600 million corporate revolving credit facility. We ended Q2 with a consolidated net debt of $760 million and an attributable net debt balance of $609 million. Our balance sheet is in excellent shape and is well positioned to complete the construction of the Mantel Verde development project by year end. With Mantel Verde spent to date of $706 million, the remaining balance is approximately $120 million. The chart on the right-hand side of the page illustrates our EBITDA sensitivity at various copper prices. You can see that 2023 is overshadowed by the EBITDA generation with Mantel Verde sulfides at full run rate production. At $4 a copper, we expect to generate approximately $330 million of EBITDA in 2023 and over a billion dollars of annual EBITDA when the Manto Verde development project is online. Although the Santo Domingo project is currently unsanctioned, the project has potential to further increase our EBITDA generation to above $2 billion per annum with metal prices at current levels. The EBITDA generation associated with Mantel Verde will enable accelerated opportunity to de-lever our balance sheet and be below one times net leverage or copper prices between $3.50 and $4 per pound, which provides additional liquidity to advance our future growth pipeline. Turning to slide 10, during recent months, we have received some level of clarity with respect to the new tax regime in Chile. The new mining royalty bill was approved by the Constitutional Court of Chile in July, and we expect it to be enacted in Q3 2023 and effective starting Jan 1, 2024. The overall effective tax rate is capped at 46.5% of adjusted mining operational income, not net income. However, we expect to be well below this level in the near term, driven by three main factors. Firstly, we do not expect to incur the 8% cash withholding tax for the next several years as we reinvest in Chile in our growth pipeline that includes Santo Domingo and expansions at both the Manto Verde and Mantos Blancos. Secondly, historic tax loss pools and accelerated depreciation allowance on our project capital spend and future spend will significantly shield taxable income. As a result of these two items, we expect our tax rate to be below 20% over the next three to four years in Chile. Lastly, we are protected by DL 600 tax stability agreement at our fully permitted and shovel-ready Santo Domingo project. Now I'll hand it over to Cashel for the operations review.
spk07: Thanks, Robin. We're now on slide 11. Pinto Valley produced 12.6,000 tennies of copper at a C1 cash cost of $2.98 per tonne. table pound during Q2, which was below our expectations, largely due to unplanned downtime in the primary crushing circuit, resulting in approximately 12 lost days of production. The operation restarted in mid-June and has been performing well through the end of July. Over the second half of the year, we anticipate higher copper rates, with no significant maintenance schedule. to drive a meaningful increase in copper production and a decrease in costs. Furthermore, we are placing an emphasis on operational discipline driven key performance indicators. We are conducting component and asset assessments based on downtime priority, and we are implementing condition monitoring in order to improve our performance. In terms of our growth at Pinto Valley, we continue to engage with the local stakeholders during the quarter. Our efforts remain focused on identifying opportunities to transform the district. Moving to slide 12. Poseman Mine had an exceptional quarter, producing 6,700 tonnes of copper at a C1 cost of $1.63 per payable pound. The mine has successfully ramped up mining rates using the new cut and fill mining method. Over the remainder of the year, we expect a continued strong performance for Cozumel. Our Mantos Blancos asset is highlighted on slide 13. Total sulfide and cathode production yielded 11.7 thousand tons of copper at a blended C1 cash cost of $3.15 per payable pound. This was below our expectations, driven by preventative mill maintenance downtime and debottlenecking. While the major components, including the crushing, grinding, and flotation circuits, remain more than capable of throughput rates in excess of 20,000 tons per day, linkages between these systems, including pumps and pipes, have exhibited bottlenecks. Our H2 production guidance at Mantos Blancos includes a plan to address the plant stability, including improved maintenance and optimization of the concentrator. We expect to be delivering more consistently high operating rates within the fourth quarter. Now on to Mantoverde on slide 14. Due to 2023 oxide production was 8.3 thousand tons of copper and cathode at an elevated C1 cash cost of $3.92 per cent per payable pound. As previously mentioned, production and costs were impacted by the plant shutdown for the electrical tie-in of the Manta Verde development project. In the second half of the year, we expect oxide production to benefit from higher irrigation levels from the expanded desalination plant, And we expect costs to decrease with higher production levels and lower sulfuric acid input prices. Most important, significant progress was achieved at the NVDA during Q2. Project progress now stands at 88%, with $706 million spent as of June 30th. With many of the classical major escalator risks behind us and or materially diminishing, The total expenditure for the project remains at $825 million and on schedule for wet commissioning by the end of the year. The Manto Verde development project will deliver blended C1 costs below $2 a pound and produce approximately 120,000 tonnies of combined cathode and copper and concentrate with over 30,000 ounces of gold per year. Slides 15 through 20 show construction progress at several key areas of the NVDP. Slide 15 shows the primary crusher with the retaining wall and the conveyances advancing well. Slide 16 shows the ore stockpile dome, which is now fully enclosed and provides capacity for approximately two days of coarse ore mill feed. Slide 17. outlines the processing flow sheet on the bottom left from a bird's eye view. All major components are procured and onsite are now in the final tie-in stages. During the quarter, the sag mill's internal rubber lining and the ball mill's liners were installed. Slide 18 shows the new truck shop, which is largely complete and will be able to support the expanded mining fleet for the project. On slide 19, we highlight the tailing storage facility. Dredging work is largely complete, and we are now in the final stages of liner installation. And lastly, on slide 20, you will find the desalination plant. It has now been expanded to 380 liters a second to support the MVDP, and we are currently ramping up flow rates to that capacity. Turning to slide 21, we outline a case study on previous ramp-ups performed by Asenko for similar copper concentrators. Recall that MVDP is off the shelf and features a conventional flow sheet. It is also a brand new plant with no pre-existing components. In the four most recent Asenko projects highlighted, the ramp-up to 100% of design capacity was achieved within six months. We look forward to completing construction by year-end and commencing the ramp-up. Now over to Wendy King for the sustainability review.
spk06: Thank you, Cashel. We're now on slide 22 with a review of our sustainability highlights from Q2. At Mantos Blancos and Mantos Verde, we have completed the independent assessment phase for the copper mark assurance process, and we expect the award of the copper mark for both sites shortly. At Cozumel, we have completed the gap assessment phase Cozumel and Pinto Valley are developing project plans to address identified gaps to participate in the copper mark process. This quarter, we established a working group to support our sustainable development strategy implementation, which we outlined in Q1. We've identified pillar leads and have executive accountability assigned. Our inaugural sustainability report for the combined capstone copper company comprising our Pinto Valley, Cozumel, Mantos Blancos, Manto Verde, and Santo Domingo sites is planned to be published in Q3. This report, titled Growing Responsibly, will build on our sustainable development strategy, including our specific greenhouse gas emissions targets. We are very pleased that the paste fill and dry stack tailings facility at Cozumel reached its design capacity during Q2. This is an important improvement to the sustainability of Cozumel Mine. We are now capable of diverting tailings to fill underground voids and provide greater stability to the mine, and we can recover more water from the dry stack tailings deposition process, reducing our overall make-up freshwater production requirements. The addition of this facility reduces the space required that conventional tailings would typically require. And proudly, at Pinto Valley, we have started a Women in Mining chapter to promote the employment and advancement of women. We have also had Women in Mining logos placed on five new trucks. Women are underrepresented in mining, and we must foster an inclusive and diverse environment to retain and attract a more diverse workforce. And with that, I'd like to pass it back to John.
spk09: Thanks. Thanks, Wendy. Turning to slide 23, we've outlined our sector-leading growth plans and some of the additional upside within our portfolio. As can be seen, we expect MVDP at its run rate production levels to bring us to a consolidated level of around 260,000 tons of copper at significantly lower costs. From there, we have a clear pathway to over 400,000 tons of copper production. We have brownfield expansions at both Monteverde and Montes Blancos with attractive capital intensity. And our portfolio includes a fully permitted and shovel-ready Santo Domingo project. Further upside exists with oxides at Santo Domingo. utilizing our SXCW plant at Monteverde, Monteverde Phase 2, growth in our Pinto Valley District, and cobalt optionality in our Monteverde-Santo Domingo District. On slide 24, we've outlined a potential development timeline for our portfolio. Nonetheless, we're fortunate to have significant flexibility in this regard, and we intend to progress our pipeline in a prudent manner. Furthermore, Our capital allocation decisions will be influenced by the eventual results of the studies we are working through with respect to each of these projects. However, this timeline does represent a feasible opportunity for us and would allow our project team to transition from MVDP to our brownfield optimization projects, followed by Santo Domingo. We are focused on execution to realize the value embedded within our portfolio. On slide 25, We highlight the timelines for the aforementioned studies and catalysts we have over the next two years that support our growth plans with further upside beyond this across our portfolio. We've continued to build a talented technical team and are working with strong engineering firms to execute on these studies. Before concluding, I'd like to announce some key management additions effective August 1st. Jim Whittaker is joining Capstone Copper as our SVP, head of Chile. Jim has over 30 years of experience, most recently with BHP Chile as president of the Escondida Copper Mine. I would also like to thank Giancarlo Bruno, our former head of Chile, who is retiring in mid-August and who was instrumental in the development projects at Montes Blancos and Monteverde. Meanwhile, we've added to our operational and technical bench strength with Hayden Halstead joining our team as Vice President, Mining and Maintenance. Hayden also has over 30 years of experience in mining and civil construction industries, primarily in South America. And lastly, Edgar Rocha is joining us as the Project Director for Santo Domingo. Edgar joins at an exciting time as we're progressing the feasibility study ahead of a potential project sanctioning decision late next year. In conclusion, We reiterate that we're in the midst of a transformational year for capstone. I'm very excited that we're on track for wet commissioning at MVDP by year end that will lead to a step change to 260,000 tons of copper per year at significantly lower costs.
spk12: With that, we're now ready to take questions.
spk05: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star 1 on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Should you wish to remove yourself from the queue, please press star 2. If you're using a speakerphone, please lift the hands up before pressing any keys. One moment, please, for your first question. The first question comes from Oris Welkida of Scotiabank. Please go ahead.
spk02: Hi, good morning. Nice to see the solid progress on the MVDP. I did want to get some more color, though, on the existing operations. We've seen a couple quarters in a row now of what I would call challenging performance at both Pinto Valley and Montes Blancos. I realize there's no more planned downtime, but, Cashel, can you give us some color on sort of why we're seeing so much unplanned downtime? And, you know, what measures maybe need to be put in place to try to minimize that going forward?
spk12: Yeah, hello, Orest.
spk07: Yeah, certainly the first half of the year has been a challenge at Mantis Blankos during the ramp-up. I think the elevator pitch is that The major components were put in, and some of the linkages between them for maintainability and operability weren't thought through really well. That was one issue we were addressing. The other issue we were addressing was probably intensity and application of resources. After when initially we achieved commercial production, We got maybe a false sense that the systems and linkages were working properly between the major components, and we didn't resource enough a crew to address outstanding issues versus a crew to address preventative maintenance issues. So we've since divided the crews where one looks after preventative maintenance, making sure that our major components are being addressed and maintained properly while addressing the weaknesses in the design between the linkages. So this is underway. We've also taken on more resources, more experienced management to address these particular issues. So we're focusing separately on implementation of preventative maintenance and reliability from addressing the interlinkage component issues we had. Maybe for just a little bit of color, I'll give you one example. One example is our hydrocyclone classification units were lined with rubber in the initial phases of the project. And early on, that worked really well. But Mantos Blancos has very coarse material and that material wear was in excess of what the design the rubber could take. So we've since relined those hydrocyclones with ceramic liners. So that's an example of where now the maintenance period between needing to change those liners has increased and therefore less downtime. So when you build many of those upon each other, you create less downtime, and that is the key to Mantos Blanco's ramp-up, and that is where we're working towards. Sorry, in Central Valley? Yeah. In the first quarter, as we sort of spoke about last time in Pinto Valley, there was heavy rainfall and some of our ore distribution circuit was not used to heavy rainfall and we were suffering from what we call sticky muck within the crushing plants. So that was a bit of a challenge. And then in the second quarter, what we've now experienced again in sort of the crushing circuit We had some failures for some key structural pieces and some for motor alignments on some conveyances. And those were the biggest issues. These are one-off failures on an aged infrastructure. This has prompted us to re-look at what our view is of asset integrity. And it's one of the focuses now where we've redesigned also our maintenance focus to look at electrical, structural, and non-destructive testing in addition to our normal preventative maintenance processes. And we believe we've addressed the biggest issues at Pinto Valley. So with what's been happening over the last month, we feel fairly very confident that we'll be able to deliver on average about 54,000 tons a day going through to the end of the year. And we also have no major scheduled maintenance shutdowns. So it's a refocus again on asset integrity and major component non-destructive testing.
spk02: Thanks, Kashil. And just one more, if I could, just on slide 24, which talks about your organic development pipeline. Am I reading this correct that you're planning to do the Mano Verde Optimization Project and the Montos Blancos Phase II and start Santo Domingo all at the same time, overlapping in 2025. Yeah.
spk09: You know, what that shows is an idealized program for each of those projects. And, you know, the way we look at Santo Domingo is very similar to sort of Monteverde Development Project Phase 1, which is a major capital project We already have a very strong owners project team together with the OSENCO team that we would intend to see coming across to Santo Domingo. The MVDP-optimized and the Montes Blancos Phase II are what could be described as more de-bottlenecking projects of existing processes. obviously have relatively straightforward implementation. For example, in the case of both, a major proportion of them is actually just additional mine fleet in terms of expanding the mine. So we do believe that we can commence each of those two projects with what I would call the mine project teams that we have. independently from our decision-making around the commencement of Santo Domingo. I think we've also sort of said before, Santo Domingo, we will look at a full notice to proceed once we're sort of confident of, I would say, sort of a number of different factors. I think the first is the completed and successful ramp-up of Monteverde. and seeing the sort of cash flow coming in from Montevideo and the deleveraging of our balance sheet. I think secondly, we would also be looking to sort of look at the macro environment and be comfortable that, you know, we sort of where we are in terms of capital escalation, where we are in terms of order lead times and copper pricing, what makes the most sense in terms of the point at which we we pull the trigger on Santo Domingo. At this stage, we don't see any reason why that shouldn't be around the end of next year. But with each of these projects, we retain total flexibility on when we actually commence these projects. So we will sort of look at the conditions at the time and see whether it's prudent to commence that particular project at a point in time whether there's any justification to pause for a while and make sure we're comfortable that whether it's our balance sheets or the macro environment is in the right condition to advance.
spk12: Thank you.
spk11: Thank you.
spk05: The next question comes from Dalton Barreto of Canaccord. Please go ahead.
spk13: Thanks. Good morning, John and team. I want to start by asking about MVDP. I mean, you're in the home stretch now. Looking ahead to the actual ramp-up, can you talk to some of the key risks you're looking at and how you're managing them?
spk09: Yeah. Thanks, Nelson. I will be turning this across to Castle to talk in a bit more detail, but just sort of from a starting point, this is a project that's We haven't used any new technology. These are established concentrator flow sheets. A lot of the de-risking takes place in the early stages of project preparation. And just by way of example, it obviously starts with the ore body. And for the sulphides ore body for the Monteverde project, we have, for the full life of the mine, 70% of the reserves in the proven category and 30% in the probable category. That's a high level of geological confidence than most mines have actually for just the next couple of years, never mind for the full life of the mine. We've done very, very extensive metallurgical test work and designed the process plants accordingly. And I think you probably saw, so we've actually Our contract with Orsenco includes the commissioning and the ramp-up process. With pretty much identical plants to the ones that Orsenco are building for us, they've achieved well better than industry average ramp-up rates in the previous four copper concentrators that they have built. The next part to sort of de-risking obviously comes around operational readiness. And I would beforehand in cost to cash, we'll just say, you know, we have a very detailed operational readiness plan. Right now we are ahead of schedule in terms of the implementation of that plan. The mine itself is, you know, it's operating at full capacity. We're already producing sulfide oil. So, you know, the trucks are there, the shovels are there, the operators are all there and it's all operating. So it's really a question of getting the the processing plants, operating procedures, processes, and team in place. That's very much the case. We're busy ramping up very quickly, the team that we've got. And I think in terms of sort of all aspects of progress, whether it's critical spares, whether it's sort of service contracts, supplies, consumables, all of that is now very well-advanced. But maybe just with that, if I can pass it first to Cash, or just for any sort of additional color.
spk07: Sure. Yeah, there are a few key components near the end of any project, and one is project completion. It's actually, you know, outfitting things. Like any project, some areas fall behind, and we address that with extra resourcing. So we've put on a night shift in the last month, which we hadn't had to do before. And that's to help with pulling electrical cables, small bore piping, and termination of cabling. That allows less people in the same amount of space, which allows for better inspection. And in a 24-hour period, obviously, further production. And in fact, the productivity has been really good. They've been pulling over 2,000 meters of cable a day. So it's going quite well that portion. And so that was one mitigating factor where we stay on schedule. Another one is in our tailings facility. We have two contractors and we split the accountabilities on the earth moving and the liner placement. And so that has really sped up the productivity within the tailings facility. And again, that was addressing, we saw, you know, a couple months ago that the productivity in the tailings facility was falling off a little. So that's something you address. So those are the things you address to meet your completion date. And then John's absolutely correct that, you know, the next thing is operational readiness. Our team has hired more than half the complement of people that are there over the next month. We'll be up to finishing that off to a total of 126 new employees, including supervisors, managers, etc. So that is going extremely well, as well as the implementation and population of the maintenance program in our SAP program and the various procedures and operating processes. The other thing that's unique about this particular A contract that we have with Asenko is they're actually staying on through the ramp up. Typically, they stay on through the commissioning phases, and then the operational readiness crew takes over, which is ostensibly the operating crew. And so in this particular contract that was negotiated with Asenko to achieve these, as per our presentation, some of the outstanding better than industry benchmark ramp ups they had in their last four copper concentrators. And we want to assure ourselves that we have a chance of doing that, too. They're staying right on through commercial production in this with their A team for the operational readiness. And in fact, their team for commissioning is already there working on that and preparing for it. So we feel really confident with it. And I just add what John said. It is key that we have 4 million tons of stockpile there. It is key that the mine is already ramped up. You know, three of the four shovels are fully operational. You know, the better part of 80% of the fleet is operating. We're just adding to future incremental stripping that is required in the mine plan later in January when the fourth shovel arrives. So of all the projects I've been with, this one is extremely well organized and looks to that operational period with a lot of forethought. And so that's why we're very confident in where we stand today.
spk13: Thank you for that detailed answer. And then just maybe looking forward a little bit, what's the latest on your thinking around the MBDP optimization?
spk09: Yeah. We're actually super excited about the MBDP optimization. Just a sort of quick summary as to what it's about is we have designed the MVDP to do 32,000 tons of ore processed a day. However, we have somewhat over-designed the primary crusher and the grinding system that we believe can do sort of in the range of 40,000 to 45,000 tons a day. And so the MV Optimize is really a study that's sort of detailed engineering that's currently underway. to de-bottleneck the back end of the plant to also be able to process that 45,000 tons a day. So that's work in progress. We'll pretty shortly be submitting the permit for that, which is a DIA, which is a relatively straightforward permit. And our current estimates as to the capital cost of this project is probably in the region of $150 million. that should produce around an extra 25,000 tons or so of copper a year. And if you just look at that in terms of capital intensity, that's around $6,000 per annualized ton of copper production, which that's about half of what MVDP itself is. And MVDP itself in turn is around half of what the industry capital intensity figures are. So it's a super attractive project. We believe it's a pretty straightforward project. It's really just sort of in the kind of flotation and filtration area where some additional equipment will be required. But we do believe it'll be a really, really good sort of returning project and one which I think sort of continues to sort of along with our other catalysts kind of really provide another exciting year in the year to come. At the end of this year, we begin the sort of commissioning and ramp up of Monteverde. We also complete the feasibility study for Santo Domingo. And then during the course of the first half of next year, we'll complete this sort of optimization study at Monteverde and obviously complete the sort of the ramp up. In parallel with that, we continue to look at Monteverde Phase 2, which would then be a sort of full second line at Monteverde. The resource base is large enough to support sort of another 45,000 ton a day line. And that's a study which we should be bringing out sort of during the first part of next year as well. So, you know, a lot of different catalysts that sort of continue this what I would call sort of low-risk growth profile moving forward. Keshav, is there anything you'd like to add to that?
spk07: Yeah. I think one of the unique things, and it was asked in the previous question too, you know, we have the opportunity to overlap MB2, MB2, or optimized MB and Santa Domingo. But I think one of the unique things about Mantoverdi Optimize and the the increase from 32,000 tons a day to what we believe will be closer to 45,000 tons a day than in the past that these Asenko designed plants have achieved this. And so I had the fortune of working on one of their previous plants, which was designed for 76,000 tons a day. And ultimately, although it wasn't called an optimized process, ended up being capable of producing consistently at 90,000 tons a day. So we know the overall engineering design is there and Asenko has validated this with us. And that is why this is based on this engineering study that will come out in the first quarter. And we have great confidence in the ability of the major components of the grinding circuit and the tailing circuit to be able to handle this tonnage. And it's something that I've experienced before and certainly Asenko has experienced before. And so we have great confidence in this being a very simple to us in-house expansion of the Mantel Verde Development Project to get to 45,000. So this isn't a complicated addition. I'd also add that, as John had mentioned, Mantel Verde Development Project has great project metrics per capital intensity. And this is even better, we believe. So we really look forward to putting out this study in the first quarter of next year.
spk13: Thanks, guys. Maybe I can just squeeze one last one in. Just on Pinto Valley, just wondering where the conversations stand between BHP and Freeport and how you come up with that 80,000 tons of copper per annum number in your presentation.
spk12: Thank you. Yeah. Thanks, Dalton.
spk09: We've been quite enthused by the engagement that we've had in that district with the players in that district, and those conversations are continuing. We're obviously sort of doing a lot of work behind the scenes in terms of looking at what an optimal district could look like. I would say it's still early stage. There's a lot of work to be done, both in sort of district discussions, but also in terms of our own... work to figure out the optimized configuration for that district. What we do know is it's a district with a very, very large resource base, a lot of infrastructure already in place, and the capacity to support very, very large throughput rates at what we believe could be highly competitive costs. When we look at where that could take us to, today we have the capability of doing around 60,000 tons a day at Pinta Valley. With the district resource base that is there, one could certainly see that being potentially tripled in terms of processing throughput rates. And just looking at kind of average resource grades in the area, that's how we sort of back calculate to the kind of numbers that you're referring to. And that's obviously in addition to what we're currently producing at Pincer Valley. So that's, as I say, it's early stage work. There's a lot of work to be done. I think that works well for us. We have When we look at our pipeline, we need to complete Monteverde Development Project. The next phase will be Santo Domingo after that. Obviously, we have in parallel potentially Monteverde Optimized and Montes Blancos Phase 2. I think that gives us the time to really work through what is the optimal approach to developing this as a world-class district.
spk12: Thanks for that, John. I'll jump back in queue. Thanks, Cynthia.
spk11: Thank you. The next question comes from Ralph of Eight Capital.
spk05: Please go ahead.
spk01: Thanks, operator. Good morning, everyone. I just want to come back to some of John and Cashel's commentary. Cashel, you talked about this comprehensive component and infrastructure assessment at Pinto Valley. and this testing that's going to be going on. And just wondering how that plays into sort of the district growth plan that was just addressed, because that in and of itself has investments in mill expansion required. And just wondering if you're going to be stress testing some of those scenarios in the study that will give us a line of sight into that.
spk07: Sure, Ralph. What we're doing with the study, and it's a joint task force, and we do work with the partner property owners in the region, principally BHP, is understanding what is available to us. And simply, we're in trade-off studies now, whereby we're evaluating what are the end members of what is possible. So one of the end members, for example, we would be stress testing is is what is currently capable of expansion at the Pinta Valley processing facility itself with obviously the ongoing maintenance focus and upgrading. And the idea would be is if you were to optimize the resources available to you within the district as far as Old Dominion, including Copper Cities, Is there a way to high grade the district to increase the grade going through our current facility? And what incrementally could we increase our current facility's production rate per day to accommodate that? So that's one end member. John described, I thought, quite well the other end member, which is, you know, maybe what if we added processing facilities in strategic locations to where those resources are to increase the district product per day. And it could be as much as 150,000 ton a day with the sum of all two processing facilities. And then utilizing all the resources in an optimized mine fashion to be able to determine what the output is. So that's the exercise underway. That exercise is key to determining what kind of partnership we would arrive at. And that's sort of the work that our technical services team jointly with the likes of BHP are working on to understand what is in the art of the possible, knowing that the resource is there. We validated the resource at Copper City's. We know there are key underground deposits within the region that also offer high-grade opportunities for sweeteners to the feed. So we're really excited about this being the next leg of growth for capstone copper after Santa Domingo.
spk01: Okay, that's helpful. Thanks, Cashel. I wanted to ask a second question and more as a follow-up to... you know, the Asenko and specifically the slide that dealt with the case studies. And just as a point of clarification, is Asenko sort of benchmark on the industry standard, or are they giving you sort of a more of aggressive timeline based on their precedents, right? And because you sound pretty confident that the proper incentives are in place regarding execution, which would put commissioning sometime in and around Q3 of 2024.
spk12: Yeah, I am pretty confident.
spk07: Their chief technical officer is a guy named Greg Lane, and he's well-known in the industry for copper flotation circuits, and he's proven it up. The proof is in the pudding. They ramp up better than what industry standards are. We all know and we all hear about other ramp-ups that take considerable time and considerable pains, and Asenko is one of the engineers that have found a niche, and their niche and their expertise is in copper plant ramp-ups. And so it gives me confidence. What I will tell you is, is budgeting purpose-wise, we've assumed industry standard.
spk12: Ambitiously and confidently, I think, we'll exceed that standard. Thanks, Keshrel. Very helpful.
spk11: Thank you.
spk05: The next question comes from Craig Hutchinson of TD Securities. Please go ahead.
spk00: Hi. Good morning, everyone. A couple of quick questions for me. John, you gave good clarity in terms of the capital cost for the MBDP optimized expansion of $150 million. Anybody can kind of give us a sort of broad sense of what the cost will be for the Montos Blancos Phase 2 optimization? Yeah.
spk09: Thanks, Craig. You know, it's work in progress. And I think sort of the approach to how we're going to deal with the Montes Blancos phase two, I think is also evolving. I would say sort of the quick answer to your question is probably sort of, you know, in the sort of sub $100 million range to get us up to 27,000 tons per day. I think the approach that we're looking at, you know, we've We are taking a lot of learnings from the current sort of commissioning and ramp up of the plant. And I think one of those learnings is that rather than sort of do a project that steps us up from 20,000 up to 27,000, we might well look at doing it in steps, sort of a progressive debottlemaking through each item of the plant that'll move us in steps up to that 27,000. 1,000 tons a day. That capital number which I mentioned, there's not actually that much that's needed within the plant. I would say at least half of that amount is actually additional mine equipment to provide the additional throughput. So it's really more a question of tweaking what is there already to get us up to that throughput rate. There's work in progress on that. We have, for example, a number of the sort of smaller, older mills that are available that can be utilized to get us to the 27,000 tons a day. However, what we are seeing is just with the current two mills that we're running for the current project, those may have the potential actually to get us all the way to that tonnage without even needing those smaller mills. So this is really where we're looking at sort of what is the most efficient sort of project configuration to get us up to that throughput rate. And that throughput rate really sort of represents the optimal kind of pillar value throughput rate for the current resource space as we know it.
spk00: Okay, great. Thanks for that. And just one other question, just with regard to the decision to sanction Santo Domingo. You said it's obviously contingent on a few things, the macro environment. They also mentioned the ability to kind of leverage your balance sheet. What kind of financial metrics are you guys sort of comfortable with in order to go ahead and sanction that project?
spk09: I'll pass that one across to our CFO, to Raman.
spk14: Yeah. I mean, Craig, we always say we want to be below two times net debt to EBITDA. And then we'll kind of lever up during the build phase. So like, making sure the numbers, you know, south of that would be a good proxy. But when you look at MBDP, it quickly starts bringing that debt closer to one time. So I think, you know, somewhere between that one to two before we layer it back on.
spk12: But we view that as, you know, back end of 2024. All right. Great. Thanks, guys.
spk11: Thank you.
spk05: The next question comes from Stefan Iwano of Cormark Securities. Please go ahead.
spk04: Yeah, great. Thanks very much for all the detailed answers, guys. Just kind of curious, I mean, it's obviously great to see the transition at Mentos Blancos and Manto Verde from oxides to sulfides. Just kind of curious, you know, given we're looking at a compelling sort of copper macro going forward, are there any sort of plans maybe in the background to nevertheless look to augment those mines with additional oxide output going forward?
spk09: Yeah, thanks for the question, Stefan. Again, the short answer to that is yes. We're looking at lots of different ideas. As you know, both the SXEW plants, Monteverde and Montesplancas, have a capacity of 60,000 to 65,000 tons of cathode per year each. At Montes Blancos, we're producing in the region of sort of 15,000 tons or so. A year at Monteverde going forward for the next 15 years or so, it's in the region of sort of 30,000, so about half the capacity. So we have between half and three quarters of that SXEW plant capacity that's available. So starting with Monteverde, you know, we've got a lot of different options. We know there's 90 million tons of oxide ore at Santo Domingo, which was never part of the project. They couldn't justify with that tonnage building their own SXEW. So today it clearly makes more sense to sort of leach that material and utilize sort of pipe the PLS to Monteverde and utilize that capacity. Because that was never included in the previous project, there's some drilling work and some mesh work that's needed before we can confidently include that, but that works under way and we're very positive about it. I would say at both operations, there's obviously the possibilities of sulphide leaching. We have low-grade sulphides at both Montesplancos and Monteverde, certainly could be used for additional feed into the SXEW plant. One of the things we're looking at at Mantos Blancos, it's an old mine. It goes back to the late 50s, early 60s. And so we've got very, very large what you'd call coarse tailings. that are quite high grade in terms of oxide grade. And we are looking at the possibility of leaching some of that material. And that could provide a fairly significant feed into our SXEW plants. On our property, we have some sort of known areas where there's sort of showings of oxides. we will be sort of moving on to investigating whether those sort of warrant development. And then obviously we sort of always look at kind of district opportunities that could sort of also feed into sort of either of those SXEW plants. To us, it's, you know, any unused capacity is sort of a potential dollar wasted. So we are looking very, very hard at how we, over time, make absolute sort of best use of that infrastructure.
spk04: Great. Got it. Well, thanks very much for that.
spk05: Thank you. The next question comes from Alex Tarentu of Seifelt. Please go ahead.
spk03: Hi, guys. Good morning. So two quick questions for me. First, I just want to go back to Mento Verde. 2024, when you guys start this mine up, One of the key benefits you've reiterated many times here is the expectation for costs to drop. Can you just give me an idea of those costs? I'm assuming that's based on, obviously, past studies and stuff. But have those costs been updated to reflect the current cost environment? So in other words, I'm guessing, or I'm asking, is that sub-$2 cost still something that you are pretty confident in achieving? So I'll leave it there for my first one. I'll ask my second one after.
spk14: Yeah, Alex, you know, we're just going through our annual budgeting process now, but those are not old tech report numbers. Like, we refresh them annually. And we've seen one of the biggest drivers is going to be energy price. It's going to move away from being cold indexed. So that's going to be some significant savings when we turn the plant on. So, yeah, they're fairly recent, but we're just going to go through the annual budgeting process to refresh them. But a lot of the input cost, one of the bigger ones is power will be, you know, falling off that cold index.
spk03: Okay, perfect. And my second question relates to the surety bond at Mintel Mine. I have to admit, I'm not particularly familiar with the accounting treatment of such bonds. But so, you know, in simple terms, the $54 million liability, is this a cash liability that Capstone is expected to pay over the next few years? Yeah, just any clarity on that would be appreciated.
spk14: Yeah, so we were identified the surety bond for Mento when we sold it. So it was Canadian 72 or 54 US. And so from accounting perspective, we recorded the 54 US as a liability on our balance sheet. And that means, like you mentioned, it will be paid out over time as reclamation is spent on the mine.
spk12: And cash. Okay. And I'm kind of assuming over the next five, 10 years or so.
spk14: Yeah, it's probably front-loaded, right? So over the, you know, a large chunk of it, probably over the next five years.
spk12: Okay, that's it for me. Thank you.
spk11: Thank you.
spk05: Once again, ladies and gentlemen, if you do have a question, please press star 1 at this time. The next question comes from Bendick Nittings from Clarkson Securities. Please go ahead.
spk08: Thank you. Just looking at the second half guidance for Matos Blankos, it's going to be quite a bit stronger than so far this year. I'm not a geologist, so how much of a gradual process is turning up that throughput, just in terms of timing through the second half? And also, what's the potential for the SOFAD operations at Matos Blankos in 2024, if the concentrator optimization is successful.
spk12: Yeah.
spk07: So, for Mento Verde, we see ourselves through the WEG commissioning by the end of the year, and the worst-case scenario, I believe, is by late H1. We'd be fully ramped up at Mento Verde Development Project, but as we've sort of been indicating in the presentation and also the Presentation, we're quite confident in beating industry standards, and our setup is going well, so we're optimistic that it'll be more in Q1 that we'll be fully ramped up for mental burning.
spk12: Mental splantos. Yes, sir. Sorry, go ahead.
spk08: No, sorry. I was more thinking about the mental splantos optimization of the concentrator.
spk07: Yeah, so we believe by the end of the year we'll be fully ramped up to design capacity.
spk12: Okay, thank you.
spk11: Thank you.
spk05: If there are no further questions, I will turn the call over to John McKenzie for closing remarks.
spk12: Thank you.
spk09: We look forward to updating you again in November with our Q3 results. And until then, Keep well and feel free to reach out to Gerald or Daniel if you have any further questions.
spk12: Thank you for your continued support and have a good day.
spk11: Ladies and gentlemen, this does conclude the conference call for today.
spk05: We thank you for your participation and ask that you please disconnect your lines.
Disclaimer