Lundin Mining Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Lundeen Mining third quarter results conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Marie Inkster, President, NCEO. Thank you, please go ahead.

Thank you, Operator, and thank you everyone for joining London Mining's third quarter 2020 results call. I would like to draw your attention to the cautionary statements on the second slide. We will be making several forward-looking statements throughout the course of this presentation and in the Q&A to follow. On the call today, To assist with the presentation and answering questions are Jinhee McGee, our Senior Vice President and Chief Financial Officer, and Peter Richardson, our Senior Vice President and Chief Operating Officer. As you are all aware, we had a fatality in our underground operations at Nevis Corvo in late September. The pictures you see on this slide are from some of the safety stand-downs that we held at every operation and at our head office to reflect on that loss to remind ourselves of the measures we can take to protect ourselves and one another from injury, and to reconfirm our shared commitment to zero harm. On slide four, I highlight safety as a key aspect of London Mining's commitment to responsible mining. Safety is the foremost of our company's values, along with respect, integrity, and excellence. Our belief is that all occupational injuries and work-related illnesses are preventable. This is why our goal is zero harm. We will continue to pursue this goal, and what motivates us is that when we succeed, we send every person home safe and free from injury, every shift, every day. Following the fatal accident, we immediately initiated our own internal as well as a third party root cause investigation, which is expected to be completed in the coming weeks. Safety lessons learned will be shared across our workforce to try to prevent such an accident from occurring again. It is also important to recognize the achievement, dedication, and commitment of all of our employees and contractors throughout London Mining. As a company, we are on track for our lowest ever injury rates on almost all leading and lagging indicators tracked, including the total reportable injury frequency rate presented in the chart on this page. In the third quarter, the Alcaparosa Mine at Candelaria and Eagle Mine were both recognized by national governing bodies for their outstanding safety records in 2019. Alcaparosa was recognized as the safest Category A large underground mine by Cernagio Min, competing against the largest operations in Chile. Eagle was awarded the Sentinels of Safety as the safest small sector underground metal mine in the U.S. by the National Mining Association. The Eagle is continuing on an impressive record, approaching one year without a recordable injury. Lastly, I wanted to highlight the Nevis Corvo and Chapada Emergency Response Team for both having provided critical off-site firefighting support this past quarter. These efforts typically go unreported and under the radar of the financial community, but they are certainly valued and recognized in our communities and by those assisted. I encourage everyone to visit our website for additional information on our approach to health and safety and responsible mining, or reach out to us with any questions. I will now turn the call over to Jin He, to run through the summary results of the quarter.

Thank you, Marie. During the third quarter, our operations produced over 105,000 tons of base metals and approximately 45,000 ounces of gold. We sold nearly 99,000 tons of payable base metals and approximately 39,000 ounces of payable gold, generating revenue of over $600 million. As the market price for the core metals we produced continued to recover, there was an aggregate positive pricing adjustment this quarter. The positive impact on revenue from prior period sales was nearly $40 million. We continued to be predominantly leveraged to copper, which generated 66% of the quarter's revenue. This is down from 71% in the second quarter on a relative basis as the contribution of nickel and zinc revenues both increased to 9% each on increasing volumes and prices. Despite the increased price, gold contributed 11% to revenues in Q3, down slightly from the 13% in the second quarter as nickel and zinc gained. Slide 6 presents a summary of the quarter's financial results. We realized a copper price of $3.24 per pound in the quarter, above the average market price, largely reflecting $0.25 per pound of prior period adjustments. Third quarter revenue was 12% above that of the same quarter last year, while growth profit increased 54%. Attributable net earnings from operations were 17 cents per share, and adjusted earnings were 14 cents per share for the quarter, well above the same quarter last year. Details of the adjustments, including the deferred tax expenses in Brazil arising from foreign exchange translation, tax asset revaluations in Chile, and prior period tax refunds in Portugal are broken down in our MD&A. With our operations performing well, we generated adjusted EBITDA of over $300 million, up 34% from the same quarter last year. Cash flow from operations was over $270 million, and adjusted operating cash flow before changes in non-cash working capital items was over $260 million, or $0.36 per share. Third quarter capital expenditures on a cash basis were approximately $90 million, bringing the total year-to-date spend to approximately $330 million. Our Board of Directors has again declared a regular quarterly dividend of $0.04 Canadian per share or $0.16 Canadian per share on an annualized basis, maintaining the increase from earlier this year. Lending Mining is in strong financial position with a net debt position at quarter end of $124 million including cash and equivalents of approximately $222 million and available credit of approximately $580 million under the company's credit facility excluding the $200 million accordion. The net debt position has improved further since the end of the third quarter and is now approximately $65 million. I will now turn the call back to Marie to discuss her operations.

Thanks, Jinhee. On slide seven, we'll start with Candelaria. Mill throughput significantly improved during the quarter over that achieved in the first half of the year. Ore mills increased nearly 20% in the third quarter of 2020 over the first half average. Measures to address variability in ore hardness and mill circuit availability, as well as the natural progression of mining in phase 10 of the open pit, all began to take hold. The chart in the middle of this slide highlights this improvement on a monthly basis. Planned mill maintenance was performed in early August, impacting throughput that month. Throughput increased to average over 80,000 tons per day in September as mining progressed deeper in phase 10 of the open pit and operational hours in the mill improved. We will continue to work on increasing the productivity of the pebble circuit. Installation of the fourth and final ball mill motor under CMOP remains scheduled for installation in early 2021. All equipment necessary to complete the project is on site and available for installation. Also important to note, as I realize there was a focal point for some in the second quarter results, open pit mining is advancing without any issues through the areas of phase 10, which are in proximity to where pit wall displacement issues previously occurred. Copper production for the quarter was just under 36,000 tons, a small improvement over the second quarter as grade was slightly below plan. The third quarter cash cost of $1.37 per pound of copper remained consistent with prior quarters and year-to-date $1.34 per pound was directly in line with previous guidance before it was withdrawn. Focusing on current activities, subsequent to the quarter end, two unions representing approximately 900 members of Candelaria's workforce commenced strike action. Despite mediation, the Mine Workers Union, representing approximately 350 workers, began labor action on October 8th. The Candelaria AOS Union, representing approximately 550 workers, began labor action on October 20th. Both unions currently remain on strike. For context, Candelaria has a total workforce of approximately 5,000 full-time equivalents, including approximately 1,400 owned employee full-time equivalents. Operations continued safely with the Mine Workers Union on strike, despite illegal, violent, and intimidating actions by some of its members. Operations were systematically wound down for temporary suspension on October 20th, following the initiation of the strike action by the Candelaria AOS Union. Critical work continues to protect required on-site personnel, the operation, and the environment. While the PAC plant, Al Caparosa, and Santos Mines are separate from the main Candelaria operations and are not a part of the labor action, their operation is being impacted at times by members of the striking unions. We are committed to responsible, respectful, and fair negotiations with the best interests of our workers and the sustainability of our business in mind. We cannot, however, accept demands that jeopardize the sustainability of our business. I will be happy to take any questions during the Q&A and answer them to the extent that I can. Unfortunately, my answers may be constrained to respective Chilean labor laws. On slide eight, Chapada had an excellent quarter prior to the interruption of processing activities in the last week of September. Production of nearly 13,000 tons of copper and 24,000 ounces of gold was in line with plan, as higher metal recoveries largely offset the lower throughput. Third quarter cash costs of 21 cents per pound of copper were better than expected, benefiting from favorable foreign exchange and higher gold byproduct prices. All gold production continues to be unencumbered and currency is unhedged. Year-to-date, the average cash cost is an impressive first quartile 44 cents per pound of copper. As previously disclosed, processing activities were interrupted by an unplanned power outage on September 27th. When power was restored, the protection system of the main electrical substation failed, resulting in damage to four mill motors. Two spare motors were installed on the SEG in early October. This has allowed the resumption of milling at approximately 30% while repairs of the other motors are actioned. We continue to expect a return to full production in December. A step change increase to full production will occur once two of the four outstanding motors that are under repair become available and are installed. To make the most of this time and improve the position of the operation, crusher and conveyor maintenance is planned, and mining activities are focusing on building run-of-mine ore stocks and waste removal. Full-year production guidance has been reinstated, reflecting a return to full processing in December. Copper production is expected to be 45,000 to 50,000 tons, and gold production is expected to be 80,000 to 85,000 ounces. Despite the interruption, annual cash cost guidance has been reduced from the previous forecast to 55 cents per pound of copper. 2020 sustaining capital expenditure guidance remains at 40 million with 20 million having been capitalized year to date. Exploration drilling is on track to complete the 40,000 meters targeted. There are now seven drill rigs on site. We have a strong quarter of drilling more than doubling the meters drilled in the first half of the year with 22,500 meters completed and $2.5 million spent year-to-date. We'll advance this as aggressively as we can while maintaining health and safety protocols. Planning for our 2021 campaign, including 60,000 meters of drilling, is well underway. Nevis Corvo, on slide 9, third quarter production of 6,500 tons of copper was below plan on a shortfall of available mine copper ore, as well as below plan grades. The voluntary five-day suspension of operations following the fatal accident on September 25th impacted our production further. The availability of bench fill stoves was less than planned, primarily due to lower development and paced fill volumes. Action plans have been initiated to address the backfill shortfall. Third quarter zinc production of 15,500 tons was less than the first two quarters of the year on plan plant maintenance in July and September, as well as the voluntary suspension later in the quarter. Nemesh Gorbo's copper production guidance has been reduced to 32,000 to 34,000 tons. Zinc production guidance has been tightened 70,000 to 72,000 tons. Aggregate operating costs were better than planned in Q3 and were significantly lower year on year. This helped to offset the impact of lower production on the C1 cash cost. Cash cost guidance has been reaffirmed at $2.10 per pound of copper for the year, having achieved $1.95 per pound year-to-date. The official restart of the zinc expansion project is planned for January 2021. During the quarter, work was ongoing to prepare for the restart. Preparation work planned for the fourth quarter includes further progress on ventilation raises, activities on the sag mill, including commissioning with waste, and work on the surface conveying systems. The 2020 capital expenditure guidance for a ZAP of 65 million is unchanged with approximately 8 million remaining to be capitalized in the fourth quarter. The project's pre-production capital expenditure estimate of 360 million euros is also unchanged. If the current safety requirements for social distancing and other personnel limitations remain in place in 2021, we expect that the project would mobilize a smaller number of contractors than originally planned with an extended schedule in order to take the project forward. We are working towards reinstating 2021 and 2022 zinc production guidance for Nevis Corvo, including contribution from the zinc expansion in our annual guidance update. Moving to zinc improvement on slide 10, the operation had a good quarter Zinc production increased nearly 40% over the second quarter production to over 17,000 tons on improved grade and throughput. Similarly, lead production increased over 45% compared to the second quarter. The operation is positioned for a strong finish to 2020 and a good start to 2021 as mine sequencing calls for a return to higher grade zinc stoves. 20, zinc production guidance range has been tightened to 72 to 74,000 tons and copper production guidance remains unchanged. Cash costs have remained stable and favorable at 55 cents per pound of zinc in the third quarter and 54 cents per pound year to date. Cash cost guidance has been reaffirmed at 60 cents per pound for the year. Underground exploration efforts continued on existing ore bodies as well as targeting Dalby. Full year exploration guidance is $6 million, with planned drilling of 17,000 meters. Approximately $5 million has been spent year-to-date, and nearly 12,000 meters of drilling completed. Lastly, on slide 11, Eagle had an excellent quarter. Its record for consecutive days without a recordable injury was extended again, and it is approaching the one-year milestone next week. Third quarter nickel production... increased nearly 45% and copper over 25% compared to the second quarter. Grades and recovery rates of both metals rose as mining progressed into the higher grade regions within the Eagle East ore body. On the strong operational performance and increasing metal prices, Eagle's already first quartile cash cost improved further, achieving a C1 of negative 63 cents per pound of nickel. Eagle is positioned for a strong finish to 2020. Full-year copper production guidance has been reiterated at 17,000 to 19,000 tons, and nickel production guidance at 15,000 to 18,000 tons. Cash cost guidance has been improved once again to 50 cents per pound of nickel from 85 cents, given the 51 cents per pound achieved in the first three quarters and expectations for continuation of this performance in the fourth. Eagle has generated approximately 81 million of free cash flow in the first three quarters, and is well positioned to continue to generate meaningful free cash flow in the fourth quarter and the next several years ahead. Slide 12 provides a summary of current guidance which was discussed in the operational sections. Candelaria's 2020 guidance has been withdrawn reflecting the temporary suspension of operations due to the current labor action. Guidance for Chapada has been reinstated on the assumption that we produce at approximately 30% capacity until early December and then return to full production. Nevis Corvo's copper and zinc production guidance have been updated and tightened to reflect the impact of lower grades and ore availability to date, as well as our expectations for the fourth quarter. Cash costs at Chapada and Eagle have been reduced given the excellent costs achieved to date and expectations for the fourth quarter. Cash costs at Nevis Corvo and Zinc Reuben have been reiterated. Except for Candelaria, the capital expenditure for each operation remains unchanged, as does our exploration guidance. During the third quarter, our operations did not experience significant disruptions to production, shipment of concentrate, or supply chains as a result of COVID-19. However, as we are all well aware, the global effects of COVID-19 are continuing to evolve And our guidance does not reflect the potential for additional suspensions or other significant disruption to operations due to COVID-19. The number of new cases in Brazil and Chile are declining, while the USA, Portugal, and Sweden are reporting increases. Moving to slide 13. Though we have had challenges over the past month, each has been met with immediate action plans. We expect to finish the year in an even stronger financial position. We continue with our objective to create value by investing in low risk, high return opportunities in our own assets. We have stated often that capital return and discipline growth are not mutually exclusive, particularly given our financial strengths. Our corporate development team continues to actively pursue M&A opportunities within the same criteria, rigor, and discipline that we have demonstrated in the past. In the current market, we see few actionable opportunities that would improve or maintain the quality of the mining assets in our portfolio, and we are not interested in just collecting assets. The core aspect of our capital return strategy is our regular dividend. When excluding the supermajors, there are few base metal mining companies that offer a similar yield. Our policy aims to ensure that the regular dividend is sustainable throughout the cycle and can be progressively increased as the asset base improves and grows. Our current NCIB structure approved with the TSX is a discretionary program. On renewal of the NCIB last year, we continued with the structure to retain flexibility in terms of execution. We will look to update our plans for shareholder returns with the issuance of our operational outlook and guidance. We expect to release this update the week commencing November 29. I'll conclude on slide 14 and summarize our current position. Financially and operationally, we are favorably positioned to address our short-term challenges and continue to execute our strategy. Noticeable progress has been made at Candelaria to improve mill throughput. The operation is well positioned for a return to full production rates once fair and sustainable labor agreements are reached. The team at Chapada has done an excellent job to minimize the expected impact and take advantage of downtime caused by the power failure. A return to full production is expected later this quarter. Restart of the zinc expansion project at Navish Coral is on track for early 2021, with planned fourth quarter 2020 activities to prepare for commissioning of the sag mill. And lastly, Eagle and Zincroovin continue to perform well, taking advantage of the improving nickel, copper, and zinc prices. We look forward to updating you on our continuing efforts in coming weeks and months. Thank you, operator, and with that, I would like to open the lines for questions.

Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, please press the pound or hash key. Please limit your question to one with one follow-up. Please stand by while we compile the Q&A roster. Your first question comes from the line of Orist Walcoda from Scotiabank. Your line is open.

The challenging year operationally across the portfolio. I mean, you've had to cut guidance at Candelaria, Chapada, and Nevis on the copper side. And I guess my question is, should we anticipate any impact of the lower 20 guidance in terms of a knock-on impact on 21? Like, is there going to be some kind of effective knock-on impact in terms of catching up from lower levels this year or do you still feel confident with the 21 guidance that sits out there you know for example candelaria at 185 to 195 000 tons or you know or does should we anticipate that there could be more of a ramp towards those numbers

Yeah, good morning, Orit. I think it's been a challenging year for everyone, and we just happen to have had a month where we've had a number of challenges. We withdrew the guidance for this year only, and we're updating our guidance right now with our life of mine and planning for next year, so we'll update the total guidance for the three-year outlook as we do every year on the week commencing the 30th of November. So, you know, we'll update then. We have not withdrawn the future year guidance. So at this point, we don't believe there's going to be a material impact, but we will reaffirm the guidance in November or early December.

Okay. Okay. Thank you. And just, I'm not really understanding kind of what happened at Nevis with respect to the grades and the guidance cut. Can you give us a bit more color there?

Yeah, sure. Peter, do you want to take that one?

Yeah, I can take that one. So, as Marie said during the presentation, the copper shortfall was due to lower available ore tons and lower grades. For ore tons, we have fallen behind on development rates. That was... primarily due to COVID proactive measures that we took in Q2, where we curtailed some of our own workforce and contractors. That was prolonged longer than planned. So we did fall behind on some capital development there as well. And at the same time, when you have less available ore tons, you also produce less waste. So you have a double effect there. Those are things that we are working on. We're improving. Of course, we have gotten people back now since a couple of months. So the production development crews are back. We're working on productivity improvements with them. And we also have actions planned to improve peak fill, which has been good the last couple of weeks. So those are some actions that have been taken. And then the copper grays. They came back in some of the areas lower than expected, so we got action plans ongoing to review and study and understand why that happened. Okay.

Thank you very much.

Your next question comes from the line of Iannis Mazboulis from Morgan Stanley. Your line is open.

Good morning, and thanks very much for taking my questions. The first one is around Candelaria. We've seen really good progress on throughput rates and you seem to be towards the top end of your guided range for September at least. But the grade was fairly low at 0.55%. Is that something that could persist in the next few quarters as you go deeper into Phase 10? Or is it a temporary development and then The second question, just in terms of the working capital development, I think we had anticipated some release in the second half, but we saw a small incremental investment in Q3. Can you give some indications on how that plays out into Q4, especially given the disruptions of Chapada and Candelaria that may impact inventories? Thank you.

Okay, great. So in terms of the grades at Candelaria, we're tracking pretty well the plan. If you look at the year to date, I think it's tracking exactly where it was in the original technical report that we had filed in November 2018. But Peter, did you want to give some general guidance on where we're going? We don't forecast grades, but if you want to comment on the progression.

Yeah, I can, Marie. As you said, the copper grades... you know, are following pretty well what we anticipated. We were expecting an increase of the grades in the fourth quarter, especially as we bind lower in phase 10, where we know that the grades will improve the lower parts of phase 10. So that was in our plan to do. But otherwise, we're following pretty well the forecast in our latest technical report.

And Jinhee, did you want to comment on the working capital development? I know we have a much better position now than we did end of quarter. We saw some additional cash flows coming in in the month of October, but did you want to comment on the working capital flows? Sure, Marie.

So, you know, for the balance of the year, we do expect, you know, fairly good and consistent cash flow. We had an increase in our cash in the last three weeks since quarter end as well. I would say some of the disruptions that we are having in the fourth quarter, we won't actually see the cash impact of that until Q1 of 2021. So I think, you know, for the balance of the year, we are expecting to be in a strong working capital financial position.

thoughts clear. Thanks very much. Thank you.

Your next question comes from the line of Jackie Prisblowski from BMO Capital Market. Your line is open.

Thanks very much. I guess to follow up on the last question about working capital, can we talk a little bit about your dividend policy or your capital return policy? I know your net debt is down to a a very low number. You're nearly finished Zeddy P. Shepard is restarting. How are you guys thinking about dividend or capital returns at this point? Is there a potential we might see that get raised in the near future? Or do you plan to renew the normal course issuer bid and do a more meaningful share buyback next year? Thanks.

Yeah, so again, we look at our dividend policy and the capital allocation at our annual budgeting and planning cycle, which we can confirm at the end of this month, early next month, we'll be updating that. We do have the NCIB in place and that has been, you know, we've continued to have that as a discretionary plan. So we'll be updating the plans on the returns with the issue of the operational outlook. You know, I agree with all of your observations. We do have a very strong financial position. We have lowering capital investment requirements and good cash flow generation. So, you know, that's something I think that sets us apart, and we look to take advantage of that. So we'll update as to what we plan to do with the dividend and the NCIB at the end of the month when we do our three-year outlook.

So, Dan, the next month. Yes, sounds great. And just I guess switching gears to Shapata, I'm just curious if the operational issues that you encountered there with the electrical failures, does that change the way that you guys look at things like spare parts going forward? Or was this truly just a really improbable kind of freak accident and it's not likely to happen again? How do you guys think about mitigating that risk going forward?

Yeah, so we have done some immediate things. Obviously, we did the root cause analysis and we took some steps. Peter, if you can maybe go a little further into detail about the steps that we've taken, but we've also put in our capital budget for next year that we will order two additional spare motors, just recognizing that we have had damage to these ones and it may impair somewhat in future if they're damaged again, the ability to repair them over and over again. But Peter, did you want to elaborate on the motor failure, the root cause analysis and what we're doing about it?

Yeah, I can. So a number of actions have been taken to investigate the root cause of the failure of the protection system and also ensure that we have additional redundancies to prevent this from happening again. One part of the investigation is that we simulated the conditions, tested the battery pack that was to power the circuit breakers in the event of failure. And we also brought in a specialized technician to help on this investigation. So we have the root cause. We have taken action. So at this time, we have replaced the entire battery bank of the substation. We're also in the final stages of issuing a detailed substation re-energized re-energization procedure and further training of electricians we've also installed a redundant protection system for the middle circuit breakers we have two systems now independent of each other and also beyond that we're evaluating further updates to the substation protection system going forward so with these measures we're confident that you know We have additional redundant protection systems in place and that this will not happen again. And we've shared all these findings with our other sites to make sure that we don't have any other potential flaws in the system. So we're confident that this was a one time.

That sounds great. Thanks very much, Peter. And thanks, Marie.

Your next question comes from the line of Daniel Major from UBS. Your line is open.

Hi there. Thanks for the questions. First question is on the tax, particularly the cash tax outlook. I think you received a rebate of just over $20-something million this quarter in terms of cash tax. Can you give us any guidance on where you expect that to come in the next couple of quarters, where you expect the cash tax rate to be 2021, 2022?

Jinhee, I'm going to ask you if you can handle that one.

Sure. I think on the cash, on the tax rebate, are you referring to the refund that we received in Portugal?

Yeah. So net, I believe you received a tax rebate last quarter, including the tax rebate from Portugal.

Yeah, so the refund that we received in Portugal is related to a tax dispute from back in 2008, and that was finally settled in. So we received $14 million in taxes and about $5 million in related interest to that. As far as timing of tax payments, that is fairly, I guess, difficult to predict in Portugal. in the sense that it does really align with our taxable earnings. And so I think, you know, our best guidance there would be to say that, you know, going forward to use our statutory tax rates in the various countries, and that's probably the best benchmark to use for forecasting.

Yeah, and I guess, Daniel, what I might suggest is that if you get in touch with Mark and Brandon who handle our IR department and all of our corporate models, then they can help you with some of that modeling for future years.

Okay, great. Thanks. And then second question at Chapada, two-parter, but what is the estimated cost of the mill repairs and will you incur all of that in the fourth quarter? and there still seems to be quite a lot of capex to spend to get to your guidance. Are you still confident you'll spend the full $40 million this year?

Yeah, so in terms of the cost of the repair, it's not a large amount. It's more the misproduction that's going to be what is the real true cost to us. But the repair will be, for all four motors, less than $1 million, all told. That's not a huge amount to us in terms of the repair. In terms of the CAPEX, much of that will be capital stripping. We are continuing to work on the mobile crushing unit. That's also going to be something that we have CAPEX coming in. Peter, I don't know if you had any additional comments on the CAPEX, but we maintain the guidance. And we're fairly confident that there's much to be done there, particularly on the capital stripping.

Yeah, capital stripping, as you said, the mobile crushing unit, also evaporators. So we have a number of deliveries in Q4 project.

Okay, thanks a lot.

Yeah.

Your next question comes from the line of Lawson Winder from B of A Securities. Your line is open.

Hi, Marie, Peter, and team. Yeah, just first question for me on Tripata. I was just looking at the throughput rate, and I know there was some impact at the end of the quarter from the interruption and the damage to the motors, but the the daily throughput nevertheless came down quite substantially versus prior quarters and versus probably the prior eight or more quarters. I'm just hoping you could help me understand how much of that was due to ore hardness versus how much of that might have been due to other factors and then what the outlook for Q4 would then be around that daily throughput. Thanks very much.

Yeah, no problem. And Chapada was tracking quite well to plan. So, Peter, can you expand on that? I know there's a lot of variability depending on what pit we're pulling from in terms of the ore quality. And if you'd like to expand on that a little bit.

Yeah. So, you know, we were seeing during Q3 a little bit harder than expected ore. During the quarter, we took some actions. We had a mill maintenance down where we made some changes to the relining system, which improved throughput as expected. So we saw positive effects of that. Of course, after our mill interruption at the end of September, our throughputs are a lot lower, about 30%, compared to full production due to the fact that we're only running one mill. We're only running the sag mill with no ball mill at the moment. And we expect that, as Marie mentioned previously, that to be the case through October, November, and then we will restart the ball mill in December when we get the two remaining motors that are needed for that. So we'll see lower than normal production rates during Q4 until we get all the mill motors back.

I guess for my follow-up, I'd like to maybe ask about the pack mill at Candelaria. It would be really helpful if you could give us an idea of, first of all, with the strike happening, is that mill and mining operation able to effectively operate as it normally would? you know is it operating at through full throughput and then um finally can you give us any idea of uh grade i i know you don't provide great guidance but uh maybe even just a range would be helpful thanks so much um yeah so the the pack mill is continuing to operate um you know we have from time to time some disruption um in and around the gates so with the shipping

With when at times the gates are blocked, but it generally has been operating according to normal operating procedures it does about 4,000 tons per day and You know it would be typically higher than the the You know open pit or so because the or source from underground you would have you know kind of that That higher 1% above So that's what we're running there and continue to do so. The Ojos operations, which the PAC plant is part of Ojos and legally not Candelaria, are not part of the strike and shouldn't be affected by the strike. But we do know that being associated with Candelaria, it is subject to from time to time blockades.

Great. Thank you so much, guys.

Okay. Thanks.

Your next question comes from the line of Dalton Barreto from Canaccord. Your line is open.

Good morning, Maria and team. I'm actually surprised nobody's asked about the strike situation in particular. I appreciate you can't comment much, but can you give us a sense for – what the ask is from the unions relative to some of these CBAs that have settled in Chile recently. Are they egregious? Are they in line?

Well, I do have to respect the negotiation processes and the labor laws, so I am limited in what I can say. But as you've pointed out, there are several operations in Chile that recently successfully concluded their collective agreements and they're now public record. We've been encouraging the union leaders to look at those recent agreements and come to the table with a willingness to reach agreement on a reasonable basis. In general, most mining labor negotiations in Chile will focus around base salary increase and the return to worker signing bonus. They talk about other issues, soft issues, but realistically, it's all about the money. Two important considerations that affect us on the salaries is one, and I think that many of you may know, if we agree to percentage increases to be embedded in this contract, it becomes the floor for our position in any future bargaining according to the law. Short-term agreements have long-term implications for us. And then secondly, the salaries are already adjusted for CPI inflation, and that's by legislation. All salaries are adjusted quarterly. So requests for base salary increases over and above the CPI, they will significantly impact our operating cost structure. So we can't accept demands that will jeopardize the sustainability by creating unsustainable increases year over year. And so that is something that we have in mind. And, you know, we are encouraging the union to come with realistic demands. And, you know, there are some things that we just won't be able to give on. So that is the situation. And, you know, in this situation, no one's winning. It's a lose-lose right now. And this is something that we're trying to impress upon them that nobody's winning right now. and that there are some things that we won't get. So we're hopeful that we can come to an agreement and pointing to those other agreements that have been reached as a reasonable basis of which we could do something. But we need to have a meeting in the minds, and we're working very hard towards that. We do have a mediator in place, and we've had numerous meetings, including, I believe, one to be held later today where we continue to hope that we can have a reasonable discussion and come to an end with this. So we're working hard to come to a conclusion and we'll continue to make sure that we do it in a reasonable way that maintains the business sustainability. So sorry, Dalton, long-winded answer there to a short question.

No, that's great, but that's actually very helpful. I presume your discussions are only with the union leaders, right? But are you surprised at all with some of these actions that the union members are taking outside your gates?

Perhaps surprised isn't the correct word. I think disappointed. because the actions are against their coworkers. So I guess that's quite sad to see. And what we really don't like is if there's action that's taken that would, for example, hypothetically create an environmental damage or a long-term damage. Those are the things that we're very cautious about. But again, we are pursuing different actions on those, so I won't comment too much on that aspect.

Okay. And then you mentioned ongoing meetings with union leaders through a mediator. Are the frequency and nature of those meetings at a level that makes you constructive, I guess, that you can come to an agreement soon? Or are you guys still fairly far apart and dug in?

I can't comment at the moment, Dalton, but we'll continue to reach out and try to reach agreement.

Okay, and then one last one for me, and somewhat related but not really. With constitutional reform on the horizon here in Chile, does that raise any red flags for you at all? Any concerns?

Yeah, so we have been following that in the background as well. So as everyone probably knows, the plebiscite that was held last Sunday was a landslide in favor of drafting a new constitution. So next April there will be a constitutional assembly elected and then that group will work towards drafting a new constitution to be voted on in the middle of 2022. So the public mood is one of excitement and people are happy that it's going forward. the near term we're hoping what this will mean is that it will be a period of relative calm and we'll see you know calming down of some of the unrest that's marked this movement and that people will will be you know satisfied that things are moving forward and that there will be a period of calm there you know times when when things are changing there's always unrest so You shouldn't be surprised if there are further incidents, I would say, but we do believe that it may lead to a period of calm here as we lead up to the next vote. And we do note that in the Atacama, The percentage of voting for a new constitution was even higher than Chilean total results. It was 85 plus percent in the Atacama. So there is a very strong will for this to happen now. What this means is pretty much the same thing that we've been thinking about throughout this is that to embed healthcare education and other social programs, there has to be a structure and a way to pay for that that doesn't stifle the economy and hurt the economy of the country. We'll watch that very carefully, but it is going to be a lengthy process. We hope for some relative calm, although there may be some people who are not happy that it's not happening faster and some bumps along the way as we get there.

Okay, great. But if tax code revision is a major piece of this, do your stability agreements protect you from that?

We do have some stability agreements. It depends on what's put in place. It depends on what the structures are. I think this is something that's been talked about even before they started talking about new constitution. They were talking about social programs and different things to different means of raising money to pay for those things. So, you know, it's, it's something we're watching and right now we're not sure what the impact will be, but we are monitoring it along with the industry associations and other business groups.

That's great. Thank you, Maria.

Your next question comes from the line of Stefan Ayanu from Cormark Security. Your line is open.

Thanks very much for all the help on that strike. That's very helpful. Just wondering, you kind of did allude to earlier that it's great to see that the mining is going great or much better now at Candelaria in that phase 10 area. Can you just remind us how long are you going to, in terms of the mine plan, how long are you in that sort of quote-unquote sensitive area where you had the Phase 9 failure a few years back? Is this something that's going to be in the mind plan for the next year or two, or just remind us what the schedule is there?

No, we move away from that area. Peter, I don't know if you have the exact details that you can give there.

I don't have the exact details, but we remind through the sensitive area that you spoke to during the call, and now we're getting deeper down, right? Okay.

It was also good to see how it sounds like you've sort of got the hardness issues there under control. Is that something that you think you have under a much better handle on now going forward, or do you think it's still going to be variable for the next few quarters?

Well, as we get deeper, the aura is softer, and so part of that issue goes away. And I think we're, you know, and again, Peter, maybe I'll pass it off to you. We're doing some additional work on the, on the public crushing and in order to, you know, prepare for times in the future when we do encounter those harder or areas.

Yeah. Okay. Yeah, exactly. But the main thing at the moment is that we're the deeper we get on phase 10, the softer the war gets. So, And that's something that we knew about. But in the meantime, we're also revisiting the pebble crushing circuit and grinding circuit to be better prepared for the coming phases. But we've done a lot of improvements, both in the mine and the mill, with the focus to increase the amount of fines. to the grinding circuit. So that's something that we have done and that's been successful and we see positive results of that during the quarter. But also a lot better operational stability during Q3 with grinding and pebble crushing.

Okay. Okay, great. Thanks very much, guys.

Your next question is a follow-up from Iannis Masvoulis from Morgan Stanley. Your line is again open.

Yes, thanks again for taking the follow-up. Just going back to Candelaria, you have withdrawn the CAPEX guidance for the year, which I guess it's in response to the operational suspension right now. But can you talk about any potential to bring forward stripping or mine development activities, which could lead to some CAPEX that was supposed to be spent in the next couple of years to be incurred in the next couple of months? Thank you.

Yeah, so the stripping is actually why we withdrew the CAPEX guidance, because with the mine shut down, we're unable to do the waste removal that we were hoping to do during this quarter. So I think it's not a matter of bringing it forward. We'll have some catch-up to do once we're able to restart. So the CAPEX guidance, it's really a matter of understanding you know, how long we'll be with the trucks parked and not able to do some of that overburden removal.

That's good, very clear. Thanks very much.

Yep.

Again, if you would like to ask a question, please press star one on your telephone. Your next question is a follow-up from Jackie Blowski from BMO Capital Market. Your line is again open.

Thanks very much for taking my question. I'll be quick, but I guess I was also a bit surprised that nobody had asked about the Candelaria strikes. I'll follow up with Dalton's question with just a last one maybe from me on the other unions that haven't yet announced a strike. There's two supervisors unions from what I understand that were coming to the end of their contract around this time, around the end of the month. Can you give us an update on if you're negotiating with those supervisors' unions or if they could be in a strike position over the next little while as well?

Thanks. Yeah, no problem. We do have five unions at Candelaria. There's one union we reached agreement with this past May, so two other unions. We still have, and their contracts are expiring. The two remaining unions represent approximately 230 supervisors, and we've started negotiation with one union as per a formal negotiation process, and we expect to commence with the other one shortly.

And when do those contracts expire? I know it's around now. Is that coming up in the next little while? Yes, by the end of the year. I thought it was earlier than that. Okay, that's it for me. Thanks very much.

We have no further questions at this time. I'll turn the call back to our presenters.

Okay, thank you very much, Operator, and thank you everyone for attending the call. We'll have our annual guidance release out at the end of November and look forward to announcing our production results in January. So thank you all, and we'll be speaking again soon. Bye-bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.