Lundin Mining Corporation

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

Thank you, operator, and thank you, everyone, for joining Lundin Mining's fourth quarter and full year 2020 results call. I would like to draw your attention to the cautionary statements on slide two, as we will be making several forward-looking statements throughout the course of this presentation. On the call to assist me 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. On slide four, I want to take some time to touch on several of London Mining's achievements in 2020 as they placed us in an excellent position to perform well in 2021 and the years ahead. While responding to COVID-19 required that we adjust some of our plans earlier in the year, We had our share of challenges in the fourth quarter. We acted quickly and decisively to overcome these. The loss of our colleague at Navish Corvo in the third quarter remains top of mind within our organization. A fatality is a rare event within London Mining because of the dedication and focus of our workforce when it comes to safety. In 2020, we achieved the best ever safety performance as measured by the total injury frequency rate and several other indicators. This achievement is particularly notable in a year filled with the distraction, both personally and professionally, of a global pandemic. We achieved our most recent production guidance for all metals with cash costs in line or better than our guidance, including notably low first quartile cash costs at Chapada and Eagle. This led to the generation of nearly $860 million of adjusted EBITDA in a volatile metal price environment over the course of the year. We were able to complete our Candelaria Mill Optimization Project in the fourth quarter and make progress on growth initiatives. We were achieving excellent progress advancing the zinc expansion project at Nevis-Corville prior to our proactive decision to temporarily suspend the project to protect the operation and the local communities from the onset of COVID-19. Minor works continued throughout the year and the project officially restarted in January of this year. At Chapada, following a brief suspension of the exploration program in March, we were able to ramp back up quickly and safely and completed nearly 42,000 meters of drilling that will help inform our expansion studies. And at Candelaria, we progressed our internal studies evaluating medium-term opportunities to expand the underground mines. Lastly, we remain focused on value creation through disciplined allocation of our shareholders' capital. In late November, we announced an anticipated 50% increase to our regular dividend. This increase to an annualized $0.24 per share was approved by the board yesterday. We continue to pursue actionable M&A while remaining disciplined to our strategy and our criteria. In short, we are very well positioned to deliver on our strategy and drive shareholder returns. With that, I will turn the call over to Jinhee to highlight the full year 2020 financial results. Jinhee.

Thank you, Marie. Looking at a summary of our results on slide 5, our operations in aggregate produced nearly 420,000 tons of base metals in 2020, including over 96,000 tons in the fourth quarter. In addition, we produced 163,000 ounces of gold in 2020, an increase of 15% year-over-year, with a full year's contribution from Japata. For the year, we sold over 380,000 tons of payable base metals and generated revenue of over $2 billion. Fourth quarter revenue totals $530 million, including positive price adjustment for prior period sales. Prior period price adjustments had a negative $50 million impact on revenue or $0.08 per share for the year. However, with strengthening metal prices, the fourth quarter impact was a positive $48 million or $0.065 per share. A detailed breakdown is available in our MD&A. Consistent with the prior year, 65% of our revenue was generated from copper sales in 2020. Gold contributed 12% to revenue, up from 9% in the prior year, with a full-year contribution from Chapada and the increase in the gold price. Zinc, nickel, and lead contributed a combined 19% to total revenue in 2020, down from 23% the prior year, largely a dilution effect with the first full year of copper and gold sales from Chapada. We remain predominantly leveraged to copper and well diversified geographically. Slide six presents a summary of the full year financial results. I will also touch on our fourth quarter results. 2020 revenue was 8% greater than last year, mainly attributable to the first full year contribution of the Chapada mine following acquisition as well as higher realized copper and gold prices. Gross profit was 13% higher, reflecting the Chapada acquisition and offset by higher depreciation. Attributable net earnings from operations were 23 cents per share for the year in line with the prior year and 16 cents per share for the fourth quarter. Fourth quarter earnings were higher than the comparable period in 2019, primarily due to higher realized metal prices, partially offset by lower copper sales volumes. Adjusted earnings were $0.31 per share for the year and $0.15 per share for the fourth quarter. Fourth quarter adjustments include $5 million of costs associated with the labor action at Candelaria and nearly $4 million for project standby and suspension costs. Details of the adjustments are broken down in our MD&A issued last night. We generated adjusted EBITDA of $857 million in 2020, a 21% increase over 2019, including $235 million generated in the fourth quarter. 2020 cash flow from operations were $566 million, in line with that of 2019. When adjusting for non-cash working capital changes, operating cash flow was $645 million, or 88 cents per share, 17% greater than last year. Fourth quarter capital expenditures on a cash basis were $100 million, bringing the total spend for 2020 to $431 million, marginally lower than the most recent guidance of $445 million. We ended the year with $141 million in cash and equivalents and net debt of $63 million. As of February 18th, these numbers had further improved to $165 million in cash equivalents and $50 million of net debt. Lastly, our Board of Directors declared regular quarterly dividends of $0.04 Canadian per share, totaling $0.16 Canadian per share in 2020. And yesterday, our Board approved an increase in the next quarterly dividend to $0.06 Canadian per share, or $0.24 Canadian per share on an annualized basis, an increase of 50%. I will now turn the call back to Marie to discuss her operations and projects.

Thank you, Ginhee. Moving to Candelaria on slide 7. In December, after reaching new collective agreements with all unions representing employees, the operation safely ramped back up to full production and exceeded our most recent guidance, producing nearly 127,000 tons of copper and 76,000 ounces of gold at cash costs of $1.45 per pound of copper for the year. The fourth quarter cash costs includes the expense of approximately $13 million associated with the new collective agreement, though it excludes $5 million of costs directly associated with the labor action. This is detailed in the MD&A. The Candelaria Mill Optimization Project is now complete with the installation of the final ballroom motor completed in December. Full year capital expenditure of $216 million is modestly below guidance of $225 million. 2021 capital expenditures are forecast to total $345 million, including $160 million on waste stripping. Candelaria is positioned to deliver 40% production growth this year on improving copperhead grades and achievement of planned processing rates. Our 2021 guidance reflects our expectation that copperhead grades will be similar to those in the second half of 2020 as we start the year and increase as mining progresses to lower higher grade benches in the open pit. 2021 copper C1 cash costs are expected to decline to 135 per pound on this increased production. Moving to Chapada on slide 8, the Chapada team responded quickly to the motor mill damage event late in the third quarter with effective action plans to minimize the production impact. Two spare motors were installed on the sag mill in early October and enabled resumption of milling at approximately 35% of the main plate capacity. Throughput was further improved with the installation of a motor loaned from Simarco on the ball mill in mid-November. And a return to full processing capacity was achieved in late December with two repaired motors received at site and installed. The remaining two motors that were successfully repaired and are being maintained as spares. The operation exceeded our most recent guidance, producing over 50,000 tons of copper and 87,000 ounces of gold for the year. In fact, the 50,000 tons of copper produced was within 1,000 tons of the original guidance provided for the year in December of 2019 with our operations outlook at that time. Chapada was also able to achieve better results on cash costs than our guidance. In the fourth quarter, the mine achieved an impressive negative 18 cents per pound of copper despite the constrained mill throughput and for the year achieved a first quartile 29 cents per pound. This positions the operation as one of the lowest cost open pit copper mines in South America. Crusher and conveyor maintenance was undertaken during the fourth quarter and excess mining capacity was focused on waste removal activities. Full year capital expenditure of 39 million is directly in line with guidance. The mine and mill continue to operate as expected and they are well positioned to achieve our 2021 guidance of 48,000 to 53,000 tons of copper and 75 to 80,000 ounces of gold. 2021 capital expenditure guidance is $65 million. Worth noting, we do not expect a significant year-over-year change in the underlying operating costs on a per ton basis. Our $1.10 per pound of copper cash cost guidance assumes a gold price of $1,700 per ounce and a U.S. dollar to Brazilian real exchange rate of $4.75, amongst other various assumptions. Chapada's exploration program had a strong second half to the year, drilling a greater than planned 42,000 meters. The primary focus remained on near mine targets to better understand the mineral resource potential and inform our expansion studies. Study work progressed during the year and is being advanced in parallel with the exploration efforts. The 2021 campaign of 60,000 meters of drilling is underway. There are currently four exploration rigs on site at the moment with plans for six for the majority of the year. Moving to Nevis Coral on slide 9, the operation produced over 32,000 tons of copper and over 69,000 tons of zinc. Copper production achieved most recent guidance and zinc was within 1,000 tons. The full year cash cost of $2.09 per pound of copper was in line with guidance of 210. In the fourth quarter, while the zinc plant achieved greater than planned throughput, zinc metal production was impacted primarily by below planned ore grades. The The mine is continuing to focus on several action plans to improve productivity of horizontal and vertical development in order to optimize the blend to the mills. 2020 full-year capital expenditures of $128 million, including expenditures on the zinc expansion project, were modestly greater than the guidance of $120 million as additional mobile mine equipment was purchased in the fourth quarter. Fourth quarter ZEP preparation work included progress on event raises, activities on the sag mill, including commissioning with waste and work on surface conveying systems. The project was officially restarted in January of this year. Progress towards completion will continue to be dependent on the future effects of COVID-19 with government public health requirements and internal measures taken to protect our employees and contractors. We have mobilized a smaller number of contractors on an extended schedule given the current safety requirements for social distancing and other personnel limitations. Consistent with our previous guidance and timeline, construction is to be completed in stages over the course of 2021, with production ramp-up planned to commence later in Q4 2021, following final commissioning of the underground materials handling systems. The 2021 capital expenditure guidance of $70 million on the project is unchanged. Approximately $30 million will be spent in early 2022, primarily reflecting a timing of payments. 2021 total capital expenditure guidance for Nevis Corvo is $135 million, including the ZEPP expansionary expenditure. On slide 10, Zinc Grooven finished 2020 on a strong note. In its 164th year of continuous production, the operation set several records, including ore hoisted, total material hoisted, and mill throughput, all while achieving its lowest ever recordable and all injury frequency rates. Zinc and copper production both achieved annual production guidance, with zinc approaching the upper bound of the guidance range. Zinc production finished strong, with a grade-driven significant increase in production during the fourth quarter. The guidance for 2021 is 71,000 to 76,000 tons at a cash cost of $0.65 per pound of zinc. The full-year capital expenditures of $37 million for 2020 were modestly less than guidance of $45 million. Sustaining capital expenditure for 2021 is estimated to total $50 million. Around half of this is for underground development, with the remaining amounts including production improvement initiatives, underground control systems, and infill drilling. Exploration efforts continue on existing ore bodies, as well as targeting Dalby and bore tobaccom deposits, which remain high priorities. Nearly 18,000 meters of exploration drilling was completed in 2020, and we have an active program planned for 2021 with 27,000 meters of drilling planned as part of a $6 million program. Lastly, on slide 11, Eagle performed extremely well again in 2020. The Eagle team's record for consecutive days without a recordable injury continued into the fourth quarter, passing one year and achieving 412 days. As mining progressed into the higher-grade regions of the Eagle-Eazor body, Nickel production increased nearly 25% and copper over 30% compared to 2019. Full year production guidance was achieved with average grade and recoveries of both metals improving year on year. On the strong operational performance and increasing metal prices, Eagle's already first quartile cash cost improved further, achieving an average of 10 cents per pound of nickel for the year and an impressive 89 cents negative in the fourth quarter. With minimal capital expenditures of just over $11 million, Eagle generated nearly $140 million of free cash flow for the year, including nearly $60 million in the fourth quarter. Eagle remains well-positioned to generate significant free cash flow in the coming years. 2021 nickel production guidance is 15,000 to 18,000 tons and copper production guidance of 17,000 to 20,000 tons. Underlying costs are very stable here, and our 50 cents per pound of nickel cash cost guidance assumes a conservative byproduct copper price of 295 per pound, amongst other assumptions. 2021 capital expenditures are estimated to total 15 million. Slide 12 provides a summary of current guidance as discussed in the operational section. This production guidance, along with our capital expenditure guidance of 610 million, is unchanged from when originally provided in late November. Also, as previously outlined, exploration expenditures are expected to be $40 million in 2021 with over 140,000 meters planned. As we are all well aware, the global effects of COVID-19 are continuing to evolve. While we continue to proactively manage under our readiness and response plans, our guidance does not reflect the potential for significant disruption to operations due to COVID-19. Turning to slide 13, we have an excellent growing production profile from our current assets. We are guiding for copper production to increase roughly 25% this year and a total of 30% by next year compared to 2020, primarily on increasing grades at Candelaria and full-year uninterrupted contributions from both Candelaria and Chapada. Zinc production is forecast to modestly increase in 2021, and as the zinc expansion project is completed and fully ramped up, is set to increase 65% in 2023 compared to 2020, and be roughly 230,000 tons per annum. Gold production is forecast to be 175,000 ounces at the midpoint of guidance for this year, an increase of 7% over 2020. Of this, nearly 110,000 ounces are unencumbered and receive full market pricing. In conclusion, I would like to reiterate that the investments we have made over the past several years have positioned lending mining well to benefit from the current commodity price environment with multiple years of production growth, decreasing cash costs, and free cash flow generation ahead. And with that, operator, I would like to open the lines for questions.

Okay, thank you. If anybody would like to ask a question, please press star 1 on your telephone keypad. Again, that is star 1 on your telephone keypad. Your first question comes from Arrest Wokoda from Scotiabank. Your line is open.

Hi, good morning. I was wondering if I could ask a couple questions about Candelaria specifically. Marie, did I hear you correctly that you said the grade profile there in the first half of 21 will be similar to the back half of 20? Was that correct?

Not exactly the first half, Oris, but we'll start the year in those levels. We expect it to improve as we go throughout the year.

Okay, so you're going to start out around the kind of .55 level. Can you give us some insight in terms of what should we assume for the average grade for the year if it's going to start out that low?

Well, I mean, you can probably back into it from the guidance, but when you look at last year, we were directly in line with our technical report issued in 2018 when you look at the grades. So there shouldn't be any great surprises. We know that it gets better as we get deeper in the pit, and so we'll have an improving profile. Peter, I don't know if you want to comment on that. We don't typically guide on grade, but just some general guidance there.

No, but as you said, we know that phase 10 improves with depth, and we're getting deeper and deeper down in phase 10. So that's all according to the technical report from 2018.

Okay. Now that you've completed the mill optimization, can you give us a sense of what kind of throughput levels are you achieving, and has the ore hardness issue gone away? Okay.

Sure. Peter, did you want to take that one?

Yeah. So first of all, FEMA, the Mill Optimization Project, the aim there was to increase throughput by 4,000 tons a day and also improve metal recovery of copper by 1.7%. That was the goal of the target. We are seeing better throughput as we also get more lower down on phase 10. As we've said previously, the lower we get down on phase 10, the softer the ore is. We know that. The ultimate throughput rate also depends on the ore blend at the time. And at the same time, we're feeding more and more ore from the underground, which is harder. So it's going to be a combination of the blend. But we're seeing better throughputs as we get deeper down in phase 10. We also see we have more power now

the secondary mills. Are you getting close to that kind of 80,000 tons a day level? Is that kind of what we should be thinking about?

We don't disclose the info on this quarter, but throughputs are improving.

Okay, but is that ultimately where you're going or where Candelaria is going with the improvements, 80,000 tons a day?

Yeah, I think, you know, we've been there, we've been there, Orist. Yeah. at those levels. And so, you know, we just finished with the last installation of the Balmain motor. We're working on new liners. So we'll probably have a couple of months where we work out the kinks and the new with everything in place. But yeah, I'd say that we're looking at that as a typical level that we would aim to achieve on a consistent basis.

Thank you very much.

And your next question will come from Jackie Pruskowski from BMO Capital Markets. Your line is open.

Thanks very much. Just a couple of other project update questions maybe. First of all, on the ZEP, can you maybe talk a little bit about remobilizing the contractors there? I know that you mentioned it in the early part of the call, it was difficult to keep the contractors on site due to COVID. How's that situation in Canada? in Portugal right now, and is remobilization going well, or is that at all a risk as you ramp that project back up?

Yeah, we don't see it as a risk. We had built into our timeline that we would be mobilizing with less people on site, smaller numbers, and an extended schedule, so that's built into our base case. Peter, do you want to talk about the project and what we've been doing and the remobilization?

Yeah, yeah, no, sure. So we have been removing people, both underground and on the surface. At the moment, we're working with piping and mechanical work underground, also splicing of belts. And then on the surface is the piping and mechanical work and some work in the grinding section. As Marie said, we have built that in in our time schedule. We are also working on the strict COVID rules and restrictions and procedures. So we test everyone that comes back, put people that are outside of the area into quarantine, you know, practice before they come on site. So we're making sure that everyone that is on site is fit for duty and then does not have any COVID symptoms or infections.

That's great. Thanks. And then maybe shifting gears just to Shapata, It's hard to tell from the release that came out yesterday, but I mean, it sounds like you're still kind of reviewing the options in terms of the size and scope of a potential Chapada expansion. Are you able to give us maybe a bit of updated color in terms of where you're at on the drill program and on the studies and when we may expect to see a result or at least to see sort of the study results and maybe the options you're looking at? Is there any color on the timeline at this point to getting that completed?

Yeah, so for the study and any release to the market as to where we're going with the studies, that's going to take a while, Jackie. We're looking at a mid-year internal review with our board of the various scenarios, and we do continue to study the scenarios, you know, everything from the modest expansion work up to a doubling. So there's three primary scenarios that we're looking at. But as you mentioned, the exploration program will really feed into that and it's been going very well. We did curtail the program early in the year in 2020, but we ramped up quite quickly and we're able to complete more than the 40,000 meters that we had originally targeted, and then another 60,000 meters this year is what's in the plan, and we don't think we'll have any issue meeting that target, and that will be important to inform the studies as well. So I would say that the next update that we would provide would be on an exploration update, probably mid-year, if we can... have a reasonable update at that time. And we're working on some different land acquisitions and other things. We hope to have those wrapped up within the first two quarters so that we can provide an update in mid-year. And then probably the studies will be a bit longer before we come to ground on which avenue might be appropriate for the expansion scenario.

Is this – the schedule seems like it's a little different from what you had first thought when you acquired the property. Is it because of COVID and the delays that you experienced in drilling related to COVID? Is it an issue that the opportunities are just – maybe there's more opportunities than you expected and you just want to sort of investigate all of them? Or what exactly is the cause of this – exploration kind of taking longer than you initially thought?

Yeah, I think there's a lot of opportunity, and it's really, if you're talking about building a new plant or moving significant infrastructure, you want to make sure that you have the drilling done to support where you're going to put those things, where the future center of gravity is going to be. Make sure you're not repeating what's happened already, which is infrastructure on an ore body. So, You know, there's a lot of information coming from the drilling programs and a lot of good work ongoing on the various scenarios. So, you know, we don't want it to take forever, but we do want to make sure that we have, you know, the best information that we can before we go forward with a major investment.

Sounds great. I may hop back in the queue, but I'll let somebody else jump on. But congrats on a great quarter. Thanks. Thanks, Jackie.

And your next question comes from Ionis Masvoulis from Morgan Stanley. Your line is open.

Hello. Good morning and thanks for the presentation. Three questions from my side. The first one on Shabad again, just a follow-up to Jackie's question. Should we be thinking about full update on the expansion option in early 2022 now instead of back into this year. Then the second question around Neves Corvo, you seem to be putting a lot of effort on optimizing the ore mix and improving the development rates, but is that going to benefit the Q1 production or shall we expect a slow start to the year for Neves? And the third question for me, it's just on capital allocation. We're seeing the step up in production rates this year in strong metal prices, suggesting a nice step up in free cash flow. But at the same time, dividend yield is below 2%. So I'm just trying to figure out in terms of timing on any additional cash returns that would you wait until ZB is fully de-risked before making any decision around that? Or would you have confidence if the current commodity price environment persists to increase the dividend without necessarily waiting for Q4 once ZB is fully commissioned? Thank you.

Okay, sure. So we got three there. I'll go back to the first question on the timing and follow up to Jackie's question, which was around the timing of Chapada. And, you know, we'll obviously want to bring that forward as fast as we can. You know, we would like to have something in the back end of the year, but I don't want to make any promises that we can't keep if we're not ready then. So, you know... We'll bring the information as soon as it's realistically available and reliable to the market. But yeah, it could be early next year, it could be end of this year. We're working on that and we'll try to expedite that as well as we can. On Navis Corvo for the ore mix, the Q1 production, I would say, you know, rely on the guidance. You know, we did have a backlog of development activities, but we are improving there. Peter, I don't know if you want to comment on the ore mix and the availability of stopes is the key for the production there.

No, not more than you said. I think it's really good that you said, you know, rely on Q1 production forecast. We're continuously working on improving mine productivity and primarily focus on, as you said previously, horizontal and vertical drift drilling development to be able to build inventory so we can optimize both production and the mix.

Yep. Thanks, Peter. And then on the third question of capital allocation and the free cash flow, yes, we're quite happy and excited to see that we're in a great metal price environment and have been investing over the last couple of years. So we're positioned well to take advantage of that. We did increase the dividend by 50% just recently. So, you know, 24 cents per share Per annum is the current rate, and we've committed to our board to come back mid-year with a review of where we are. So we'll have an update on that mid-year. We're not going to wait until ZEP is finished or anything else. We'll have a look at that mid-year.

That's great. Thanks so much.

And your next question will come from Jack O'Brien from Goldman Sachs. Your line is open.

Hi. Good morning, Marie. Good morning, everyone. Thank you for the presentation. I just want to clarify firstly on the unit cost guidance you've given. I think you mentioned for Chapada that the there's no significant sort of change in operating costs year on year, 21 on 20. It's mainly a function of some of your assumptions. I noticed there's also increases at Neves Corvo and Zinc Grooven and Eagle, albeit lower. Can you just confirm for those three mining areas as well, it's really just a function of assumptions or are there any sort of underlying considerations we should also factor? That's my first question.

Yeah, it's a combination of the output and the unit costs on a cost per ton milled in each of those places is very stable. So we don't expect any step change in costs. Our budget assumptions are in the table where we put our cash costs. They're very small, so you need a magnifying glass to see them. But we do use, say, for example, 475 real with our assumption for our 2021 budget. And we know that that is in our favor, as well as the copper price, which we budget at 295. That's just an example. The Euro US at $1.20 and the Swedish crown at $8.50. So depending on where that goes, it will affect the cost profile because the costs are in those local currencies. But underlying costs, there's nothing fundamental that's changing in the business that would affect those costs.

Got it. Thank you. And just a couple of small follow-ups. Can you remind us just if there's any other sort of union negotiations due in 2021 across your portfolio?

Typically with Brazil, it's an annual negotiation and they pass quite calmly and without an event. Our Chilean mines, which are the ones, of course, that people will be most concerned about and typically is a more prolonged and difficult process of negotiation. We don't have any expiring contracts until 2023. We just agreed a new contract in Portugal. Peter, I'm not sure of the duration of that. I know there's an annual salary adjustment, but I think the union agreement itself hasn't changed in many, many years.

That's correct.

And then in Sweden, it's an annual contract.

and we just closed the ones in sweden as well yes yeah and uh ego mine is not unionized okay that's incredibly helpful thank you very much um and and then just the final one um obviously you've touched quite a lot on on some of your exploration and sort of internal um expansion opportunities first was just wondering and actually i noticed your guided exploration spend has is actually sort of down fairly meaningfully for 21 on 20. So just interesting thoughts there. And then I guess the follow up, you know, given that there is so much in sort of your existing footprint or near it, should we assume that kind of internal opportunities are your first priority over M&A?

I would say that they're not mutually exclusive. And if we found a good project, we would definitely take advantage of that and invest and drill. And we continue to look for properties that we can develop and drill. And we have a team in Toronto and in South America looking at opportunities on the early stage exploration side. So, you know, we don't have any... We have a lot of opportunity around our sites, which is why you see the big budget around our sites, and it's very prospective, but I wouldn't take that as an indication that we don't have interest in other opportunities. I'd say the opposite, that we would like to have additional opportunities, but we do have very good opportunities in and around our sites. I think one of the big differences is the zinc room program is a lot less in terms of spending this year, but that's because we've moved a lot of the drilling from surface to underground. So even though we still have a lot of meters planned, I think it's 27,000 meters, Peter, correct me if I'm wrong. We still have a lot of meters planned, but they're drilling from underground base, so it's a lot cheaper than the surface drilling. So that brings the budget down quite a bit. But no, we have... Okay. a lot of prospectivity, a lot ongoing, and we'll continue to be active on the exploration front.

Great. Thank you, Marie.

And your next question will come from Daniel Major from UBS. Your line is open.

Hi, and thanks for the presentation. A couple of questions, slightly follow-up questions, but I'll ask them anyway. On the sort of cash returns and the balance sheet if we look at the cash generation this year and certainly if the super cyclists out there are right you know there's going to be a large net cash position at the end of the year can you give a preference at this stage special dividends or buybacks and do you intend to be exercising anything on the NCIB at this point and at the share price level first question

Yeah, so I would say that given where we are in the cycle and we're high above our long-term pricing and we're not at our all-time high for our stock price, but we have a very good healthy stock price, it's probably less likely that we would undertake a buyback at this point in the cycle and more likely to give returns in other ways.

Okay, very clear. Thanks. And then second question is, I mean, from what it sounds like on your comments around the Chapada expansion, you know, we're not likely to hear much till the end of the year or early next year. Is it fair to assume then that it's unlikely that you would be able to deploy meaningful amounts of capital into that project until 2023? If that is the case, should we be assuming capex somewhere around the 450, 460 million mark in 2022?

I'm not sure what our, you'd probably be able to get the number from our technical reports because they're pretty fresh. I would say you're probably in and around the right ballpark. I mean, we go between, call it, you know, 500 million and, you know, 375, depending on where we are with pushbacks in the various pits. So there is a bit of a range there. I would say averaging 400 plus or minus 100, depending on what we're doing and where we are. But I wouldn't say your number is off base. Without having all of the information right in front of me for that year, I wouldn't say that you're materially off base.

And is it correct to assume it's unlikely that there's a huge amount of upside risk from that driven by Chapada?

No, and I would say that if we are going to invest in a project, it would be one with a good return. So where you have cash flow reducing in the near term, you should have a NAV bump in the long term. I'm just trying to remember from the budget. 2022... CapEx, similar levels but slightly lower than 21, I think, and then a little bit of a drop off 23, 24. Do you recall?

Yes, that is correct, Marie.

Great, thanks.

And your next question will come from Abhi Agarwal from Deutsche Bank. Your line is open.

Morning, all. Congrats on a strong set of results. I mean, it's such a challenging year. Thanks for taking my questions. I have two questions, please. So the first one is on the balance sheet. When you think about balance sheet, is there a net cash level you think about in case you have to execute on a transaction? And my second question is a generic question on inflationary pressures. A lot of your peers who have reported have highlighted inflationary pressures coming through. Are you also seeing that come through your operations? Thank you.

Sure. I'm going to ask Jinhee to feel that because I know that she's been working with the sites on our minimum cash balances and also has been monitoring the inflation and other cost pressures. So, Jinhee, do you want to take those too? Jinhee, you may be on mute.

I was on mute, sorry. Sorry, I didn't catch all of the first questions. Can you just repeat the first question?

Yes, sure. Oh, sorry, go ahead.

Sorry. So my question was, when you think about the balance sheet, is there a net cash level you think about in case you have to execute on a transaction?

Yes, sorry. No, when we think about executing on a transaction, we look to... You know, we can always borrow to execute on transactions, so we don't manage our net cash for purpose of transacting. So, you know, we look at shareholder returns from our operations, and then we can look at borrowing if needed to act on transactions. And then I think your second question was on the inflation. And... You know, overall, we're not actually seeing any significant general cost inflation at our operations at this time. You know, where we are seeing some inflation is or expecting some would be in some specific consumables. But, for example, in the grinding media, we are expecting some increase there because of the current steel prices. And, again, another one like diesel, again, is another area where you know, the price will be impacted by broader markets. But generally, I would say our operations are not seeing significant general inflation. And I think, you know, when we looked at some of our maintenance service contracts, some of those, many of our operations have long-term service contracts. So again, not seeing a short-term inflation impact. On a country-by-country basis, I think Brazil is one that's experienced a little higher inflation in the recent year. And I think there, though, at Chapada, what we have going for us is that the exchange rate there is quite favorable, and so it's offsetting any of the inflation that we might see. So, again, I guess overall, really not expecting, you know, we're experiencing costs in line with our expectations and more of an impact, I would say, on our lead times than prices at this point.

Got it. Thank you.

And your next question will come from Ionis Mastoulis from Morgan Stanley. Your line is open.

Okay, I have a couple of follow-ups, if that's okay. The first one, Shabada, in terms of the expansion, my understanding was that if you were to go down the path of a significant expansion, let's say in the order of 50 or 100% of the existing throughput rate, that would require... um expense permitting process that could take a bit of time could you just remind us how long could that to um you know first production if you were to announce um a plan let's say first of january 2022 how long would it take to actually get the approval and and hypothetical construction timeline um And then secondly, in terms of working capital, I was just wondering, because you have had the disruptions around Candelaria and Chapada in Q4, is there any excess inventory that you may have to work through, or do you feel that overall inventory balances and working capital in general is at a normal level as of the end of Q4? Thank you.

Okay, yeah, sure. On the expansion permitting timelines, the permitting process in Brazil has changed recently. It used to be based on throughput levels and tonnages and things, but now they've moved to a footprint-based type of scenario. Peter, I know you've been looking into this and have been talking about the permitting timelines and potential timelines. Can you give a little more color on that?

Well, a little bit early to say on the timelines for the project. It all depends on what alternative is chosen at the end of the day. Permitting timelines, they have been increasing. So it's also difficult to say that it's going to also reflect finally on what alternative is chosen. So I don't know if we can say much more now on that. Yeah.

Yeah, I think if you look at, you know, say a new EIA in Chile takes, it used to be 24 months, and now it's probably closer to 36 months. But it would probably be, you know, something less than that. And there's probably, it'd probably be less than half of that. But there might be preparatory works that you could do in the meantime, and other things that you could do to advance the project while you're waiting for certain permits. So, Again, you know, Peter's correct. It's difficult to say exactly, but we would anticipate that we, you know, could start early works and do different things within the existing footprint as we wait for any major permits that are required. On the working capital excess inventory, Jinhee, did you want to address that one? I'm not aware of anything, but you may be.

Yeah, sure. We have a little bit more in the inventory than we did at the end of the third quarter. That's because we did have a shipment delayed at Candelaria. But I would say it is in line with what it was at the end of last year. So I wouldn't say it's excessively too much inventory at the end of the year, but it is a little bit higher than it was at Q3.

Okay, great. Thank you. Thanks again for

And your next question will come from John Tommaso. Your line is open.

Thank you very much. Could you review what your size thresholds are for new projects in terms of mine life, total tons, copper equivalent, NPV or IRR? There are Are a few big porphyries available, but there's a lot of little projects dancing around?

Yeah, typically we wouldn't look at something under, say, a 50,000 ton copper equivalent unless we felt there was a prospect to get it above that. And the reason for that is that an operation takes an equal amount of management time and effort if it's you know, 20,000 tons or if it's 200,000 tons, if it's got challenges. So, you know, we don't want to be in the position where we have, you know, 15 mines and 10 of them offer you 5% of your NAV. You know, that sounds like a big managerial and administrative nightmare for not a lot of return for your efforts. So we'd rather... focus on things that are going to be meaningful and if we're going to acquire something to make sure that we're spending our efforts on things that are going to make a difference for the company. And then in terms of mine life, I think Eagle was a very special one for us and it remains very special in terms of being an exceptional ore body and you'll see from the free cash flows that it's an excellent operation, we wish that it had a longer mine life. And so typically with mine life, we're looking at things of a greater than 15-year mine life and recognizing that we're lucky with Eagle that we were able to find Eagle East and that we're benefiting right now from some very good pricing But in this business, we've been below our long-term copper price for almost the last 10 years. And so if you have a short mine life and you invest at a long-term pricing, you may not make your money back. If you can't ride at least one or two of the cycles, then you risk not making your money back in this business. So we do look at that from time to time, but we really have been sticking to our criteria in terms of what we're looking for.

Does this mean only porphyries and you can save time by just skipping VMS deposits?

No. None of our last acquisitions were porphyries. Chipata is not, depending on who you ask. Candelaria is an IOCG and Eagle is a sulfide. So it doesn't necessarily mean that we won't look at those types of ore bodies. I mean, we do have very good underground expertise within the company. We have, you know, that's one of our core skills. And so, you know, large block caves and at Candelaria, for example, we're doing 14,000 tons per day, which is... one of the larger non-block cave underground mining operations. So I think our minds are open and we'll look at various options for things.

Thank you.

We have no further questions. Thank you. Oh, wait a moment. We have a Jackie. Chris Colosoli, John Tumasa, are you finished taking your question?

I'm finished, thank you.

Okay.

Sorry, is it my turn? Sorry about that. I just hopped on again at the last second. I just wanted to circle back on your dividend. I realize that the announcement just came out today for the six cents dividend per quarter, and I know the day a dividend is announced is probably not the right time to ask about the next dividend announcement. But I'm just kind of curious if you could talk through the expectations you're using when you set the dividend. And I realize you've already gone through the commodity prices, but I'm thinking more in terms of how much spending do you think that you would be comfortable spending with, I know you kind of talked about this already, net cash, but like what kind of net cash or net debt level would you be comfortable with going forward and incorporating that, you know, into that, so the ship pad expansion or any kind of new future projects? Can you give us just a little bit more color in terms of like where you might see the dividend from here? You mentioned earlier that, you know, you might prefer not to do a buyback at this point, but maybe some other options. So is there a possibility that you'd incorporate like a special into the into the mix at some point. Can you just give us a little bit of color on what you're thinking is around all that?

Yeah, so that's what we'll be discussing with the board mid-year. And so we'd like to... We've just come off a fairly rough quarter, and we'd like to see a good chunk of time with some steady production and to see the continuation of the metal prices. We also know that the market's been heating up in terms of M&A. We want to look at the opportunity sets. and what options there are for investing in some accretive transactions. So we'll look at that in connection with our cash balances and the expectations going forward mid-year. And I'd say our general view is you don't borrow... to pay a dividend, you borrow to invest and you pay your dividends from cash flows. So that's the mentality that we would use when we look at the dividend. And I think Jen, he talked about the net cash and we have no intention of hoarding cash on the balance sheet for a rainy day or anything like that. That's not what we want to do. We want our assets, including cash, to give us returns. So we'll look at that mid-year.

Thanks very much, Marie.

Okay. Thank you, everyone, for participating in the conference call, and looking forward to reporting a good, strong Q1 result to you in April.

Thank you, everyone. This will conclude today's conference call.