Lundin Mining Corporation

Good morning, ladies and gentlemen, and welcome to the Lending Mining second quarter 2022 conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require assistance, please press star zero for the operator. This call is being recorded on Thursday, July 28, 2022. I would now like to turn the conference over to President and CEO, Peter Rockendale. Please go ahead.

Thank you, Operator, and thank you, everyone, for joining Lundin Mining's second quarter 2022 results call. Before we get into the formalities of the call, it is a profound sadness that I'm announcing the passing of our former chairman, founder, and friend, Lucas H. Lundin. Lucas passed away after a courageous two-year battle with brain cancer. Lucas founded Lundin Mining with his father in the mid-'90s and was a member of the board and chairman of the company for more than 25 years until he stepped down this past May. In his role as chairman, Lucas oversaw Lundin Mining's development from an exploration stage company into a global mid-tier producer with a strong copper focus and a portfolio of world-class assets. The many successes of Lundin Mining and the Lundin Group owe directly to Lucas' extraordinary strategic foresight, massed by his relentless drives. His guidance and support for his colleagues will be deeply missed, however, as his pursuit and vision of creating a world-class base metals company lives on. Lucas would say, get the right people, empower the people, and have good assets. Those of us that work closest with Lucas share in his approach and will continue to build upon his legacy. Thank you, everyone. And now I will continue with our quarterly calls. I will draw your attention to the cautionary statements on slide two, as we will be making several forward-looking comments throughout the prepared remarks and likely during the Q&A as well. On the call to assist with the presentation and answer 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 would have seen from our news release last night, this will be the last earnings call for Jinhee and Peter with Lundin Mining. Jinhee will be retiring at the end of September, and Peter will soon be moving over to the gold space with Barracole in Nevada. I want to thank both Jinhee and Peter for their dedication and contributions to Lundin Mining. I'm also excited to also announce the appointment of a new member to Lenny's Mining Board of Directors and four strong leaders to our executive team. Natasha Vav will be joining our board on August 1st. Natasha is currently the Executive Vice President and Chief Operating Officer leading Agnico Eagle Mines, Operations, and Project Development teams. We look forward to the operational leadership, insights, and perspectives Natasha will bring to our board. Juan Andres Moral will be joining the management team as our new SPP and Chief Operating Officer next week. Juan Andres is a well-known mining executive with an exceptional track record over 30 years, including more recently as the General Manager of Mining Operations for BHP's Escondida. Prior to that, Juan spent 14 years with Antipagas at various senior operational leadership positions, including Head of Operations at Las Palombras. Juan also worked at Codelco as Head of Strategy and Director of Technical Services. One vast open pit and South American experience will be a strong and natural fit. Tedder Folsom will be joining as SVP and CFO on September 1st. Tedder is coming from Lending Energy following his acquisition by Acra BP for approximately $14 billion, where he has been CFO since 2017 and also has many years of experience in finance and strategy. Dave DeCair is joining as SVP at Jose Maria and will have overall responsibility for the project. He has over 40 years of mining and EPCM experience in a variety of global projects. Most recently, David was at Lundin Gold where he oversaw the successful construction of the Fruto del Norte project in Ecuador. Before that, he was with Freeport-McMoran as project director for the highly successful multi-billion dollar Cerro Verde expansion project in Peru. David was also general manager of project development for South America for Extrata Copper. Lastly, I'm happy to announce the promotion of Kristin Mariusa to SVP Sustainability, Health and Safety. Kristin successfully led our Eagle Mine as Managing Director for several years, prior to being appointed VP Environment and Social Performance. She joined Lundeen Mining in 2013 with the acquisition of the Eagle Mine from Rio Tinto and has held senior positions in Operations, Environment, Permitting and Health and Safety. I'm very pleased to welcome these exceptional colleagues to Lundeen Mining. I believe their depth of experience will prove to be invaluable additions to our team as we continue to develop Lundin Mining into a world-class base metal producer. Continuing with sustainability and responsible mining on slide four, earlier this month we published our 2021 sustainability report. As many of our long-term shareholders are aware, Lundin Mining has been reporting on our sustainability performance in a standalone document since 2010. Within this year's report, we are proud to have announced our new Focused on the Future long-term sustainability and strategy. Focused on the Future is comprised of a promise, a purpose, and five pillars as described in the image on this slide. The foundational work incorporates initiatives already underway at Lend-E-Mining as well as new ones. It will guide us as we continue to develop meaningful performance indicators to track and measure our sustainability efforts. Under this framework, we are pleased to have announced an interim Scope 1 and Scope 2 GHG Absolute Emissions Reduction target of 35% by 2030 compared to our 2019 baseline year. Though we are already a leader with an industry-low GHG emission intensity for the base metals we produce, we acknowledge our role in the call for action to reduce emissions, commit to low-carbon alternatives, and develop climate resilience. The bullet points on the right side of the slide outline just a few of our 2021 safety, environment, and social performance highlights discussed in this year's report. I encourage those interested in additional detail and more information on our approach and performance to read this report. And as always, please reach out with any questions. I will now turn the call over to Junhee.

Thank you, Peter. On slide five, second quarter copper and zinc production exceeded that of the prior year quarter while nickel production was in line. We produced over 120,000 tons of base metals and approximately 39,000 ounces of gold. We also sold over 110,000 tons of base metals and approximately 32,000 ounces of gold on a payable basis, generating revenue of $590 million. Unfortunately, second quarter revenue was affected by significant provisional pricing adjustments given the late quarter decline in base metal prices. We remain predominantly leveraged to copper, with the metal generating nearly 60% of the second quarter's revenue after pricing adjustments. Zinc contributed 15%, an increase over recent quarters, in part given increasing zinc production with the ramp-up of Nevis Corvaux Zinc Expansion Project, and nickel contributed 12%. Slide 6 presents a summary of our second quarter financial results compared to the same quarter last year. With the late quarter decline in base metal prices, our second quarter revenue and financial results were significantly impacted by provisional price adjustments. Prior period adjustments and the marked market of current period sales that remained to be settled at the end of the quarter were approximately negative $220 million. Details of pricing adjustments are in our MD&A and financial statements. Ultimately, we realized a copper price of $2.82 per pound, including a negative $0.96 per pound prior period adjustment. The nickel price of $7.64 per pound, including a negative $3.40 per pound prior period adjustment. Second quarter revenue of $590 million was 32% below that of the same quarter last year due to lower realized metal prices net of price adjustments. On a year-to-date basis, revenue was comparable to the first half of 2021. We reported an attributable loss of $0.07 per share and adjusted loss of $0.05 per share. Details of these adjustments are broken down in our MD&A as well. Despite the earnings loss, we generated adjusted EBITDA of nearly $150 million and cash flow from operations of over $365 million. Adjusted operating cash flow before changes in non-cash working capital was $50 million or $0.06 per share. On a cash basis, capital expenditures are roughly $215 million in the second quarter for a first half-year total of approximately $360 million. Capital expenditures at Eagle, Nevis Corvo, and Zinc Rubin are all tracking well to guidance. As will be discussed in the operations section, capital expenditure guidance for Candelaria and Chapada have been revised given inflationary cost impacts on capitalized stripping, including diesel and other mining consumables. We generated over $215 million of free cash flow in the quarter, paid over $170 million in dividends to shareholders, and purchased $8 million of shares under our normal course issuer bid in late June. The balance sheet remains in a very strong position with cash equivalents of approximately $500 million and total liquidity of approximately $2.3 billion at quarter end. Lastly, our Board of Directors declared a regular quarterly dividend yesterday of $0.09 per share Canadian. I will now turn the call over to Peter Richardson to speak to our operations.

Thank you, Jinhee. Starting with Candelaria on slide 7, the operations had a strong second quarter. This is now three quarters in a row of on-plan or better performance on Candelaria. The operation produced nearly 41,000 tons of copper and approximately 23,000 ounces of gold at a cash cost of $1.86 per pound. Tons milled, ore grazed, and recovery raised were all in line with plans, and production is tracking well to annual targets. While the open pit ore mining is continuing primarily from page 10 pushback, with ore production from page 11 pushback to start later in the year. Consistent with many other miners have indicated for this reporting season, Candelaria saw increased costs for energy and mining consumables during the second quarter. Offer cash costs of $1.06 per pound was greater than planned in the prior year quarter due mainly to high costs for energy and consumables partially offset by favorable foreign exchange effects. Full year cash cost guidance has been increased $1.75 per pound copper from $1.155 to reflect the first half actuals and the expected impact of inflationary increases, primarily electricity, fuel, maintenance, and contractor costs. Candelaria's second quarter capital expenditures were approximately $85 million, bringing the first half total to roughly $170 million. As noted on the first quarter follow, capitalized waste ripping was trending above the annual guidance. Given the inflationary increases in diesel explosives and other consumables, Canada's full-year capital debt has been revised to $400 million from $370 million, primarily reflected in increased cost of mining inputs. On the growth and exploration front, the initiatives to develop the Canada-era planned federal crushing circuit are advancing as planned and are expected to increase in all capacity starting in 2023. As we have previously discussed, technical study work evaluated the expansion of the North and South Sector underground mines from the current 14,000 tons per day to 26,000 tons has been finalized. The study indicates a technically and financially robust project, and we will be looking to update the royalty and taxation assumptions ahead of a decision to advance the project once there is greater clarity. Ultimately, a construction decision will require the receipt of the 2040 EIA. Lastly, we have completed over 14,400 meters of drilling as part of this year's $15 million exploration program. Much of this work is focusing on drilling and upgrading underground resources where we have demonstrated the effects in the past. Of note, second quarter drilling has extended the mineralization of the Al Caparosa mine, including two holes that have intersected 2% copper, nearly 115 meters, and 3.5% copper over 65 meters. Moving to Chapada on slide 8. The difficult operating conditions Chapada experienced in the first quarter, particularly the significant rainfall, have knocked on the impact into the first part of the second quarter. Plata produced 10,345 tons of copper and 16,000 ounces of gold at a cash cost of $2.98 per ton of copper. Production was lower than the same quarter last year due to the ore blend sent to the plant, which had an impact on the mill throughput, grade, and metal recoveries. However, several daily mill throughput records were achieved in June. While we are exploring options to increase or release the catch-up on what was delayed from the first quarter, it proved difficult to secure the necessary additional contract mining equipment and personnel to achieve the interest in rates required. As a result, we have revised the pilot's full-year production guidance to 45,000 to 50,000 tons of copper and 62,000 to 67,000 ounces of gold, as access to original plant ore sources has been pushed back in season. We continue to expect production to be weighted to the second half of the year or went to the great profile of seasonal operational conditions. Second quarter cash costs was greater than the comparable quarters of 2021, attributable to inflationary increase in energy, mine consume goals, and contractor costs, as well as the lower production and therefore sale volumes. Cash cost items have been increased to $2.25 per pound of property from $1.60 to reflect the first half actual revised production forecast expected impact of inflationary increases in energy, primarily fuel. Chapada's second quarter capital expenditures were approximately $30 million, bringing the first half total to approximately $35 million. Like Candelaria, capitalized waste stripping was noted on the first quarter fall to be trending above the annual guidance. Given the continued inflationary cost increase in diesel, explosives, and other consumables, Chapada's full-year capital guidance has been raised to $80 million from $65 million mainly reflecting increased capitalized waste shifting mining input. Despite the slower start with the rain, Chapada's exploration drilling is ahead of plan with over 34,700 meters completed in the first half of the year. The Saula Mineralized Area equipment has now increased approximately 1,200 meters by 950 meters from 1,000 meters by 750 meters discussed last quarter with assay results received during Q2. The system continues to remain open in all directions. With the sizable and growing potential of Tauva, we will focus our efforts on drilling and how to best incorporate it in the future extension scenarios. We aim to issue a maiden mineral resource estimate for Tauva at the end of 2023 as part of our company-wide mineral R&R objectives. On slide 9, the Tauva assay results presented have any season in the second quarter. To the end of June, approximately 36,000 meters have been completed in 99 holes, that they have received for 67 of the holes. Five rigs continue to tap extensions mainly from north, towards Formiga, and to the west of the discovery area. This slide shows the location of completed holes, where assay results are pending, as well as plant holes. We continue to be very excited about this discovery and believe it supports our view that many opportunities exist to increase the size and quality of our mineral resource base at Chapada. Potential implications, this high-grade system may have an ongoing expansion, so it is being evaluated at Saluba, and at this area, it can be used to evolve mutually. Moving to the Eagle and Lighthead. The operation had a strong quarter, producing over 4,700 tons of nickel and 4,400 tons of copper, a cash cost of 90 cents per pound of nickel. The mill set records for nickel recovers, including an all-time monthly record of 88.5% in June. Production of copper and nickel are trending at a high standard of guidance, with production of both to be modestly weighed to the second half of the year on grade profile. Cash costs was higher in the prior year quarter due to inflationary increases in operating costs and lower realized copper price, impacting the dry high product of this. However, costs are on track to meet annual guidance, which remains unchanged at a negative 25 cents per ton of nickel. Eagle's second quarter capital expenditure was approximately $3 million. bringing the first half to roughly $7 million. Full year capital guidance of $7 million also remains unchanged. We are continuing to work to include the upper keel zone into our 2023 LIFO mine plan and subsequent mineral R&R estimate updates for release in the first quarter of 2023. We are aiming to be in development in the upper keel zone in 2023 with the initial production in the first half of 2024, further extending the LIFO mine and improving the production profile of the later years. We're also continuing internal study work on the lower keel zone, which, the lower grade than the upper keel zone, is even closer to the existing raft infrastructure. Second quarter drilling has extended Eagle East semi-massive sulfide mineralization further to the east. Currently, there are three underground rigs testing the expansion area roughly indicated around the post-mineral gap zone, and the fourth rig is to begin drilling later this month. Moving to Nevis Borgo, I'm sorry to interrupt you. The operation produced over 7,500 tons of copper, 20,000 tons of zinc, and 900 tons of lead, and a cash cost of $2.39 per pound of copper in the second quarter. Zinc production increased 40% over the first quarter as the zinc expansion project began its ramp-up in the area. We have reduced zinc production for this year to 90,000 to 100,000 tons, from 110,000 to 120,000 tons, to reflect ramp-up progress achieved to date. and the re-forecasting of when we expect to achieve full underground mining rates from newly developed ZEPP areas. The surface facilities continue to wrap up all original works to be completed early in the third quarter. We have targeted full production rates in August, although now expect this later in the fourth quarter as we continue to increase underground mining rates. With this, zinc production is expected to continue to be second half-weighted as ZEPP is ramped up over the remainder of the year. Copper production guidance remains unchanged. The second quarter cash cost of $2.39 per pound of copper was greater than that of the corresponding quarter last year due to high costs for consumables, particularly electricity, somewhat offset by favorable foreign exchange rates. Despite the elevated second quarter, cash costs remain on track to meet full-year guidance of $1.80 per pound of copper. Nivis forward second quarter debt continued. In the second quarter, the operations produced over 21,200 tons of zinc, 500 tons of copper, and 9,100 tons of lead, at a cash cost of 44 cents per ton of zinc. The operations contract is delivered on full-year zinc and copper production guidance. Forecast cash cost remains in line with the annual guidance, and is expected to increase with expected inflationary impacts on consumables being largely offset by production volumes and by-product credits. In 2021's second quarter, capital expenditures were approximately $15 million, bringing the first half total to roughly $25 million. For years, sustaining capital guidance of $60 million remained unchanged. Engineering for the sequential quotation project to further improve concentrate grades and better recovery rates is underway. It is a relatively minimal capital expenditure project, on the order of $15 million with a high IRR and quick payback period. Lastly, exploration efforts continue with over 8,200 meters of building now completed this year as part of the 20,000-meter 2022 program. Primary focus remains on increasing mineral resources at Hobie and between Berkland and New Greenwood. I will now turn the call back to Peter to discuss the Jose Maria project.

Thank you, Peter. As I mentioned earlier, we're excited to have Dave DeCair join as SVP Jose Maria with overall responsibility for the project. He has significant global experience gained over 40 years. His experience covers all aspects of project management for many types of mining projects, ranging from managing pre-feasibility studies to large EPCM projects. We're looking forward to have Dave join the team. As Dave joins, we are continuing to progress the project through the next stages, including working with authorities and discussions on commercial agreements, and securing additional environmental and sectoral permits. With floor, engineering work has been progressing. Engineering is estimated to be 23% complete. We continue working towards an updated technical report in the fourth quarter of this year. This is to include an update of cost estimates to be reflective of current conditions and evaluation of potential scope changes compared to the plans of the 2020 feasibility study, as well as new mineral reserve and resource estimates. Over 31,000 meters of drilling have been completed since the last 2020 estimate. As previously mentioned, we intend to spend approximately $300 million as milestones are advancing the project, including engineering, commitments for long lead time items, early works, and drilling. Of this, approximately $55 million has been recorded as capex. We are continuing to advance all aspects of the project in a deliberate and disciplined manner to minimize the risks and towards a construction decision at the appropriate time. This includes multiple discussions and avenues for project financing, including traditional debt sources, joint ventures, and off-take partnerships. Moving to a summary of our current guidance on slide 14, we have procurement strategies in place which are mitigating the impact associated with global inflation and supply chain delivery. Though, as with many of our peers in other industries, we're experiencing continuing risks with these. We have not seen a significant impact on our operations relating to direct supply chain availability. However, in our forecast, we expect inflationary impacts on diesel, electricity, and contractor costs to continue to increase operating costs for the remainder of the year. As discussed in the operational section, Chapada and Nevis Corvos Inc. production guidance has been revised. While we remain on track to achieve the midpoint or greater production at our other assets, we also continue to be on track to meet our original annual copper and nickel guidance. Cash cost guidance for Candelaria and Chapada have been updated to reflect first half actual and expected inflationary impacts on mining consumables. Similarly, capital expenditure guidance has been updated for Candelaria and Chapada, reflecting higher expected open pit capitalization of waste stripping costs due to inflationary impacts on energy and other mining consumables. The approximately $300 million we expect to spend advancing the Jose Maria project remains unchanged. as does expiration expenditure guidance of $45 million. I'll conclude with slide 15. Both second quarter financial results were impacted by cost inflation and the late quarter decline of prices for many base metals. We remain favorably positioned both financially and operationally to address potential macroeconomic challenges and to continue to execute our strategies. Noticeable progress has been achieved at Candelaria to improve operational predictability. The operation has delivered its third quarter in a row of on-plant or better production results. Unfortunately, we have not been able to accelerate or release Hatchipada to the extent necessary to make up for the impacts of the significant rainfall earlier in the year. Our operation got back up to plant rates as it exited the rainy season in the second quarter and is positioned to deliver a strong second-half performance. The silo of the discovery continues to grow. The zinc expansion project is making progress in its ramp-up as demonstrated by the 40% quarter-over-quarter increase in zinc production. The surface facilities continue ramp-up as well. We had originally targeted full production rates in August, though we now expect this to occur later as we continue to ramp-up underground mine rates from the newly developed ZEPP areas. The operation remains on track to the risks originally provided in copper production and cash cost guidance. Eagle and zinc ribbon both continue to perform very well. on track to achieve annual production, cash costs, and capital expenditure guidance. And we continue to make progress advancing the Hosier Mia project in a deliberate and disciplined manner. Lastly, I'm very excited to welcome four experienced leaders to our executive leadership team. Thank you, operator. I would like to open the lines for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. You will hear a three-tone prompt acknowledging your request and your questions will be pulled in the order they are received. Should you wish to decline from the pulling process, please press star followed by two. And if you're using a speakerphone, please lift your handset before pressing any keys. One moment for your first question. Your first question comes from Orist Wakodan with Scotiabank. Please go ahead.

Hi, good morning. I wanted to talk about the Jose Maria project. Obviously, market conditions have changed quite significantly since last quarter. I'm wondering how you're thinking about that project now in the context of the market. I realize you're committing to spending the $300 million this year, but are you still thinking that assuming you get the approvals you need, the stability agreement, etc., that you hope to sanction this project, call it early next year, or given the current environment, is there a chance that you could wait until things improve and maybe complete more of the detailed engineering before you start?

Thanks, Orest. It's Peter Rockendale. Yeah, we are obviously highly cognizant of the current market, and that certainly factors into our decision-making, if you will. Right now, we are proceeding with, in particular, a lot more detailed engineering. FLIR has been doing a very good job on that front. As alluded to in the call earlier, we are working with the government and trying to finalize a number of the different commercial agreements and sectoral permits, et cetera. And we are looking at the timeline with the project. and what the call it near-term spend would be in light of the current capital markets. But our intention is to keep moving forward at the pace that we kind of originally indicated, but we're certainly highly cognizant of this market, and we'll take that into consideration as we move forward. The other thing, too, is in parallel, we'll continue with the discussions that began last quarter with a number of different counterparties that may be involved with the project on a going-forward basis to assist with some of the financing requirements.

Okay. Thank you. And as a follow-up, if I may, just at the Nevis Corvo ZEP project, obviously you cut the guidance for this year, I guess, based on the first half of the year. At this point, do you see any knock-on impact into the guidance for 23 at the ZEP project, or is this strictly a 22 issue?

You know, that's a very fair question, Orson. I suspect... You know, a lot of people that are lined up on the call with questions, we're going to ask the same one and maybe they're going to ask it on more than one asset. So, if I can kind of take a step back and speak to the entire portfolio, if you'll bear with me. You know, we obviously worked hard, we do work hard quite frankly on all our assets and we've put an extra focus on the last nine months or so at Candelaria, just given some of the historical challenges and the fact that it is our biggest asset and As Peter alluded to, we've been very fortunate to have three consecutive quarters as per plan, and it's tracking extremely well towards the year-end guidance. So that's definitely a positive. And seeing Groovin' and Eagle, we're continuing to track well versus our guidance also. Not trying to cover up for the other areas where we have challenges. At Nevis, it's positive to see the year-over-year growth, but we have a lot more work to do, quite frankly, to achieve that run rate capacity. And I think As you move in towards Q3 and Q4, and we get a feeling to where those production levels are, there is certainly the possibility if they don't ramp up as per plan or as quickly as per plan, that could slip a little bit into 2023. You know, we've had a number of teething issues as we've started up SEP, not uncommon when you start up a new operation. We had some pipes that weren't built to spec, a few belts ripped, et cetera, but We've actually been able to overcome all those issues. The other thing is with ZEPP starting a little, well, starting a fair bit later than planned, we are mining in different areas than the original plan, excuse me. So that in itself also presents new challenges. So that being said, you know, we'll get a better idea as we move into Q3, Q4 with Nevis and whether or not that slips into 2023. I can assure you that we remain very, very focused on the successful ramp-up of Zeph, and we've got our entire team focused in on it. So, you know, it's a world-class ore body. The zinc price is very, very strong, so we need to ensure that we maximize it. And maybe I'll just mention Chepadix. I'm sure it's going to come up as well. You know, with respect to the challenges that began about two years ago, When we had our first season of normally high rainfall, it did impact production, but it seemed like it was a one-off. Of course, that was followed up by even a bigger year. If we go back to arguably three years ago and earlier, they were going through droughts. It's very hard to predict what the weather patterns will be, but we have to make assumptions that this weather, if you will, could be for an extended period of time, and we have to do a lot better job with our planning, making an assumption that there could be heavy rainfall. So our new hires and technical services have been down at Chapada just recently and are reviewing a few different scenarios to adjust on the likelihood that there is further strange weather patterns. I'll be down there in a few weeks with our new COO and we'll be looking over those plans as well. So it's the third question that you ask. As I say, three of the assets I think we're pretty bulletproof on and the other two we're working hard to make sure that we can give you guys guidance that's reliable.

Thanks, Peter.

Sorry for the long-winded answer.

Thank you. Your next question comes from Jackie Price-Belowski with the MO. Please go ahead.

Thank you. Maybe I'll just start with a quick housekeeping question. It sounds like from the prepared remarks that your annual reserve and resource update is going to be in Q1, which is a bit later than you guys normally do it in September. How does that affect the guidance that you're going to give us for 2023? Are you still planning to put that out in, like, November, December, like you normally do, or is that going to be later this year as well?

So the R&R is going to be presented in – sorry, this is Peter Richardson. The R&R is going to be presented in January, February of next year, and the guidance for the coming years will be presented as per normal, of course, in January. end of November, as we've done previous years.

Thanks, Peter. That's helpful. Maybe a question on provisional pricing. Certainly this was a rotten quarter for your exposure to copper prices, and it certainly hit your revenues pretty hard. I know some companies, some of your peers, hedge that provisional pricing exposure, so we don't have to forecast it. Is that something that you've given some thought to? Because it certainly would help to smooth out these kind of peaks and valleys on your revenue side.

Yeah, maybe, Jackie, I'll answer that one. You know, it's not something historically we've done, but we have had a fairly thorough discussion over the last couple of days during a lot of internal board meetings and et cetera. And it's something that we're going to look a little bit harder at on a going forward basis. you know, part of the biggest advantage to doing it is giving the analysts, et cetera, the ability to, you know, better predictability, if you will, on the assumed prices. So it is something that we will certainly take a closer look on a going forward basis.

Thanks, Peter. And maybe if I could sneak in one other question. I know you gave a pretty thorough answer already to the question about what's happening at Chapada on the operating side. Can you maybe talk a little bit about what's happening on the project side as well. It looks like you're still getting some good drill results from the Sauva area, but how does that feed into an ultimate expansion plan and when might we expect to see some detail on that?

Yeah, I mean, I think it's going to be prudent for us to continue going pretty hard at Sauva. The percentage of successful drilling is incredibly high. So I think, you know, with respect to the market, we're going to have to be patient here as we continue to drill. It seems like it's open in every direction, and given the grades that we're experiencing, it would have a material impact in any expansion scenarios. So we are feeding that information as we speak into some of the studies, and again, when I go down in a couple of weeks with a number of our senior leadership team, we're going to review that information. I think that's probably all I can say. We're very excited, quite frankly, as you can see in the presentation. It continues to grow. As I said, I think it'd be prudent to really understand what the ultimate size of this is, and then we can determine how best to move it forward.

Thank you. And maybe I'll just pass on my congratulations to Peter on his new appointment and Ginny on her retirement. And also, obviously, my condolences on the passing of Lucas.

I appreciate that. It hasn't been the Easter weeks.

Yeah. Your next question comes from Dalton Barreto with Canaccord. Please go ahead.

Thank you. I want to start with asking about Lucas's favorite jurisdiction, Argentina. Peter, I'm wondering what the status of the commercial agreements is and whether the recent resignation of the finance minister and all these talks with the IMF are going to have anything to do with it.

Thanks. Thanks, Alton. No, I mean, right now our communications with the various parties where we have always been aligned continues to be quite positive. You know, in fact, if anything, they're wanting to see the project move forward even quicker than we are. I mean, I shouldn't say that we don't want it to move quicker, but we need to make the prudent decision on timing when we have all the necessary inputs. So there's still very, very, very strong support in Argentina. Again, as part of my South American trip coming up in a couple weeks, I will be down there and I will be meeting with a number of the different officials and just ensuring that we continue to have that level of support.

Okay, and then you said to Oris earlier that you'll be cognizant of market conditions when you green light Jose Maria. Any thoughts on maybe accelerating your buyback instead?

So I guess what I can say on the buyback is after close today will be out of blackout. And the buyback was in place quite recently. And there's still capacity from what has been approved to continue with our buyback. So I think that's something that we think makes sense. And I would expect that it's a high likelihood that you may see us active in that area.

Okay, great. And maybe one last one from me. You talked about some of the cost insulators, and a large part of that's out of your control. But given the tailwinds you're seeing in some of your local currencies, any thoughts on hedging out some of those to protect your costs?

Yeah, ironically, again, historically, we don't do hedging. But ironically, this is something that we've just had a very, very thorough conversation on. and I anticipate on select situations you may see that occur as well.

Okay, thank you. That's all for me.

Your next question comes from Ionas Masvoules with Morgan Stanley. Please go ahead.

Hi there. Good morning. A couple of questions left from my side. The first on Jose Maria again. And around the scope changes that you are considering, could you potentially discuss the order of magnitude that we're talking about in terms of spending? Is it more in the order of $100 million to $200 million, or are we looking at something closer to $500 million or higher? And the second question is on Eagle. You already touched on the upper kill zone, but could you perhaps elaborate a bit on the opportunity in terms of mine life extension, production rates, and unit costs, just to get a better sense on what it means for the asset. Thank you.

Hi, this is Peter Richardson. I'll answer at Eagle. So, as we said during the conference call, we are incorporating the upper keel zone in our life of mine, which will be updated at the end of this year. But we won't see any throughput increase at the asset, because we're maxed out on what we can produce, mine tons and mill tons, but we'll see an extension of lipomine as it is more ore that we'll be feeding the plants.

And just going into your question on Jose and Maria, we did provide a bit of an update last quarter, so nothing has really changed on that. The scope changes were designed around increasing the power into site, crushing capacities and changing the tailings, camp size. So it was the similar things that were mentioned last quarter, and there's no changes or updates to any of the numbers that we would have mentioned in that last quarter.

Thanks very much. Thank you both.

No problem.

Your next question comes from Greg Barnes with TD Securities. Please go ahead.

Yes, thanks, Peter. The cost guidance for 2022 of Japan and Candelaria has gone up a lot. Obviously, I recognize the inflationary impacts, but how sticky are these costs going to be into 2023?

Hi, Greg, it's Jinhee. I would say we're expecting kind of similar levels into 2023. And, you know, as we said before, that, you know, currently the foreign exchange has really been helping and offsetting on the inflationary impacts in those two specific countries. And as Peter had mentioned, you know, kind of protecting on the foreign exchanges is something that we're also looking at. So I guess overall, I'd say into 2023, we're probably expecting or we're forecasting kind of similar pricing.

Are you thinking $1.75 cash costs and $2.25 at Chapada in 2023 as well?

Well, I would say on the cost side, so, you know, when you look at the C1, that takes into account our byproducts. credit as well, right? So the byproduct also will impact the C1, but I think if you look at all the gross cost basis, and that's outlined in our MD&A, I think that is kind of what we're expecting to be continuing into the trend into 2023. Okay. Okay.

Thank you. That's it from me.

Your next question comes from Matthew Murphy with Barclays. Please go ahead.

Hi, my condolences on Lucas as well. And sorry, you have to do earnings at around the same time. But just a quick one for me on Jose Maria. Just on the percent engineering, do you have a target level that you want to achieve before the go decision? And what do you think that'll be? And does that influence some of your discussions as well on financing?

Well, I would say that it influences our discussions on timing. And I can say without putting a line in the sand on this call that the number is considerably higher than where we are today. So, you know, we'll make sure that we have the necessary engineering to ensure the accuracy of the project. And there's a lot of historical data to show what that number is. But, you know, we're achieving great progress increases, if you will, on a weekly basis with floor. So we're quite happy with this progress, but we certainly need more progress before we make that decision.

Okay. Thank you.

Ladies and gentlemen, as a reminder, if you do have any questions, please press star one. Your next question comes from Lawson Winder with Bank of America. Please go ahead.

Hi, first, my sincere condolences for your loss, and I'll also say just thank you for the update today. I wanted to ask about Nevis Corvo and the electricity cost in Europe, which I think we all know have risen to fairly eye-watering levels. Could you just remind us how the electricity contracts at Nevis are structured in terms of when they might be reset or have to be renegotiated, and what would be the exposure to spot prices when those contracts are renegotiated?

Hi, it's Jinhee. I'll take a first stab at that. At Nevis Corvo, earlier this year, we were fully exposed to the energy markets as we came off some contracts at the end of last year. And as we saw the spike, we weren't able to lock into a pricing that we were happy with. But I will say that in the recent months, we have been fixing our prices, and I believe about 50% fixed for the remainder of the year. So it is something that we are continuing to watch, and it's come off quite a bit from earlier in the year as well. So I think going forward, our expectation is that the levels that we're seeing right now and lower going forward And we're also looking at an alternative energy source as well. So looking at the possibility of investing in solar.

And I may add, Lawson, that with that possibility of looking at solar, even just moving forward may have an impact on our current contracts with some of the energy providers that would like to be involved with that project if we should go that route. So that's quite interesting, and it's something that we're working very, very hard on as we speak. Just a brief thank you again for the condolences.

Okay. No, thanks for that. That's helpful. And then just on your exposure, the power you're getting now, is it correct to assume that it would be natural gas generated?

It comes off the grid, and so it's hard to break down all the different sources that feed into that. We can get that answer for you.

Okay. I also wanted to just kind of stick with the electricity cost themes. I mean, if I recall correctly, in 2023, Candelaria's power will transition to a renewable energy contract. How is the pricing on those contracts now looking? Because I think the original expectation was for a pretty material reset, lower in electricity costs as a result of that.

Yes, absolutely. That still continues to be the case, and I should have mentioned that when Greg asked the question for 2023. We will be entering into the new contract in 2023, and compared to current prices, we are expecting it to be more than 60% lower in cost. So that will have a significant impact on the production cost in 2023 and going forward. So that still remains the case. And the additional benefit on the new contract is that it's fixed and just adjustable for CPI.

Oh, okay. And So what would be your percent of cost that's made up from electricity today versus where it will go once those contracts reset in 2023?

Yeah, right now our electricity accounts for about 20, just over 20% of the cost. And I would say historically it's probably been, it's still quite high. I'd say probably been maybe 15% of the cost.

Okay, that's super helpful. If I could, I just wanted to ask another question about the reserve update, but more in particular, Jose Maria. I just wanted to kind of better understand the materiality of the update that we might expect at Jose Maria. So would you expect it to materially change, like, the shape, the depth, the size of the expected pit, and or will it add any additional pits?

Well, I think what I would say is a lot of the drilling that's been done to date is really just an extension of the previous drilling that ended in mineralization. And so it's a pretty homogeneous deposit. One can assume that the holes that are going deeper are having success. And I think when we come out with a new R&R, you will see an increase there. We have not done a lot of drilling outside of that area, so with respect to other pits, not at this time.

Okay, that's super helpful. If you guys wouldn't mind, I'd like to try and sneak in one more question. I was just thinking about the ZEDI-P project. You provided some detail, but maybe it would be helpful just to get a little bit of a better idea in terms of what's sort of causing the aura of the availability. For example, I mean, is it just developments falling short, or are there issues with ground conditions, or maybe are you just having issues getting like the necessary skilled labor?

So it's Peter here. So we're having issues in the mine with productivity, primarily in the Lombardo area, which is the main zinc area that has been developed and is being developed for that. So it's productivity issues that we're working on and we're making changes. And so that's been the main issues in the mine. And then we've also had some issues, as Peter alluded to, with TV issues with the ramp-up of the crusher material handling system and some on the surface. We have a number of initiatives to rectify those issues. We had a plan down two weeks ago or last week. So a lot of changes and upgrades have been made to get over those issues.

Okay. Thanks very much for the update today.

Your next question comes from Daniel Major with UBS. Please go ahead.

Hi there. Yeah, thanks for the questions. The first one, just some clarity on the cash allocation to Jose Maria this year. You've allocated $300 million and you booked $54 million in CapEx. When we look at the expiration and corporate line, project development increased to $41 million, which includes Jose Maria. How much should that spend as Jose Maria? And what should we expect in the coming quarters? Is the $300 million split between CapEx and this project development line under the exploration, or is that incremental to the $300 million?

Yes. So on the Jose Maria spend, we spent about $90 million in total on up to June 30th from acquisition, so 55 being in CapEx, and about 45,000 going through OpEx, or not CapEx. And I would say that includes, again, the project management, I guess the overhead costs and such, and I would say going forward of the $300 million, I would say probably a similar allocation to what we're seeing or what we saw in Q2, I would expect for the balance of $300 million.

Sorry to be clear on that. Is the expense costs on top of the $300 or included in the $300?

They are included in the $300.

Right. Okay. So similar run rate, $40 million a quarter in expense, and then the balance goes through CapEx.

Yes, yeah, maybe a little bit less on the OpEx and a little bit more on the CapEx as we, you know, do make payments and deposits on long lead items. So I think it was, you know, about 40, 60 this quarter. Maybe it'll be more like 30, 70 or something going forward. I would say it's slightly higher CapEx, slightly lower expense.

Very clear, thank you. Next question is for Candelaria, two questions. Firstly, on the outlook for 2024, beyond your explicit guidance period, I think the last technical report indicated an uplift to north of 190,000 tonnes of copper 2024. There's obviously been a lot of changes at the mine since then. Should we be expecting that the 2023 run rate is kind of medium-term expectation for Candelaria, or are you still expecting to get north towards 300,000? mark in the middle of the 2020s. That's the first part of the question. And then the second part of the question, with respect to more capex being allocated to Chile, certainly we heard Anglo-American today, I think, making a pretty explicit reference that the shape of the tax changes would mean it's unlikely that they allocate much more capital towards Chile. What's the threshold and the tax outcome that's obviously still under debate that would mean additional investments in Chile are off the table? If the current proposal that I think implies something close to a high 50s effective tax rate, would that be enough to stop you pushing forward with the underground?

So I can comment on the production. So at the moment, we are working on our draft life of mine. going forward, and we will be finalizing them at the end of this year, and that one will be disclosing our guidances going forward. We're also looking at updating the technical reports, so that's a project that's ongoing with our technical services team. So those will be also coming out later this year and early next year.

And Daniel, I may answer the question on Chile. I had the opportunity to meet directly with President Boric last month and a number of his deputy ministers as well. I don't think we were surprised by the new proposal, if you will, call it 45% effective tax rate below 200,000 tonnes. That part just wasn't a surprise, but I think we were a little surprised, as are a lot of the mining companies, in the call it ad valorem tax that he put on it. after the fact. So, you know, I'm going to be down meeting with a number of the ministers as part of my trip in a few weeks. And I think we'll be expressing our views on that one, which are very much aligned with everyone else's views. You know, I think this is going to be, quite frankly, viewed as the first proposal by the government and it's going to require a fair bit more discussion because they're starting to see the pushback by a lot of mining companies. And, you know, whether or not this goes through in the fall will be questionable. So, There's a few things we still need to be doing, quite frankly, like the 2040 EIA in order to proceed with the project. So, you know, we'll see what the tax system comes out as we're lined up with all the other moving parts.

Also, Dan, if I might add one thing that we've communicated this before, the pebble increase, the pebble debottlenecking process is progressing as planned, and the plan is to have that up and running during next year. And with that, we'll see greater throughput in the middle. That's going to be a positive change going forward.

Okay. Thanks. And one more, if I may, just perhaps slightly a high-level question. I mean, we've seen some mining executives this reporting season seeming shocked that the copper price fell from $4.50 a pound. I mean, I'm assuming most companies, including yourselves, were not. planning on that kind of price environment to move the business forward. You know, 350 is not a bad price. You know, is there a threshold level that either you cut the dividend or, you know, don't move forward with Jose Maria?

I mean, I think at this current commodity price, you know, what our current strategy is still solid, and I don't see any changes to that. So the first part of your question, you know, I spent some time yesterday with our commercial team, and even they were quite surprised by the drop in the pricing, only because the demand that they're seeing for our end products is a bit of a disconnect to what the current prices are. And, you know, we feel that these, in the long run, are unsustainable prices. You know, you're seeing a lot of projects being challenged. You're seeing across the board everyone's cost going up, and I think that's going to spill through eventually to also the end commodity prices. So... I think most CEOs were surprised by the drop. Obviously, 350 is still a good price, but you have to take into consideration our costs have all gone up as well. So I think the outlook for the commodity is still as strong as it ever has been, but it's difficult to predict it in the short term.

Okay. Thanks so much, Scott.

There are no further questions at this time. Please proceed.

Okay, thank you, Operator, and thank you to everyone on the call. I mean, obviously, the current climate has presented a few new challenges, but I'd like to reinforce that London Mining is in a very strong position. We've got a great balance sheet right now. We've got five solid operating assets, and we've got some new people joining our senior leadership team that we're quite excited about. So I think the outlook is strong, and some of the current teething issues that we're dealing with we will certainly address. I look forward to updating everyone in due course. So thank you for the support.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.