Lundin Mining (OTC:LUNMF) Corporation (LUN.TO) has released its operating and financial results for the first quarter of 2024, showcasing robust copper production and significant increases in mineral reserves. The company reported copper production of 88,000 tons, tracking well towards its annual guidance, and declared a regular quarterly dividend.
Adjusted EBITDA stood at $363 million with free cash flow from operations at $68 million. A focus on asset optimization and cost reduction was highlighted, alongside strategic plans to potentially increase ownership in the Caserones project and ongoing studies for the Josemaria project.
Key Takeaways
- Lundin Mining reported copper production of 88,000 tons with an annual guidance of 366,000 to 400,000 tons.
- The company declared a quarterly dividend of CAD0.09 per share.
- Adjusted EBITDA reached $363 million, and free cash flow from operations was $68 million.
- Mineral reserves and resources estimates increased by 26% year-over-year to 10.6 million tons of copper.
- The company hedged against Chilean peso and Brazilian real exposure and entered a copper price hedge.
- Net debt stood at approximately $980 million, with a leverage ratio of 0.7x adjusted EBITDA.
- Lundin Mining is considering increasing its stake in the Caserones project and is advancing the Josemaria project.
- The company remains on track to meet its annual production guidance for copper, zinc, gold, and nickel.
Company Outlook
- Lundin Mining is focused on asset optimization to drive down costs and increase margins.
- The company is analyzing the option to increase its ownership in Caserones from 51% to 70%.
- Studies for the Josemaria project are ongoing, with production and throughput scenarios under evaluation.
Bearish Highlights
- The company anticipates a significant reduction in working capital balance due to changes in sales contract payment terms.
- Concerns about Neves-Corvo's cash costs and production were addressed, with expectations to be in the upper half of the cash cost range.
Bullish Highlights
- Lundin Mining is confident in the performance and improvement of the Caserones mine.
- Positive exploration results have been reported in the Vicuña District, particularly at Cumbre Verde.
- The company remains bullish on copper prices and its position in ongoing discussions with potential partners.
Misses
- There were no specific misses reported in the earnings call.
Q&A Highlights
- Lundin Mining discussed transportation and copper hedging strategies, with a case-by-case approach to hedging.
- The company highlighted exploration results and cost optimization efforts at the Candelaria mine.
- Tax considerations were discussed, with an expected consolidated tax rate of 35% to 40%.
- The RIGI Bill was mentioned as a potential positive impact on the economics of the Josemaria project.
In conclusion, Lundin Mining's Q1 2024 financial results exhibit a solid start to the year with strong copper production and a healthy financial position. The company's strategic focus on asset optimization and cost reduction, along with its potential increase in ownership of key projects, positions it to capitalize on the favorable copper market. With the ongoing advancement of the Josemaria project and positive exploration results, Lundin Mining is poised to maintain its momentum in the metals and mining sector.
InvestingPro Insights
Lundin Mining Corporation (LUN.TO) has demonstrated a strong start to 2024, underscored by their first-quarter results. InvestingPro data and tips offer additional insights into the company's financial health and market performance:
InvestingPro Data:
- Market Cap: $8.58 billion USD, indicating a substantial presence in the mining sector.
- P/E Ratio: 63.55, suggesting a high investor valuation compared to earnings.
- Revenue Growth (last twelve months as of Q1 2024): 27.71%, reflecting a significant increase in the company’s revenue streams.
InvestingPro Tips:
- Analysts are optimistic about Lundin Mining's profit trajectory, predicting the company will be profitable this year. This aligns with the company's confident outlook and strong start in Q1 2024.
- Despite some analysts revising their earnings downwards for the upcoming period, Lundin Mining has experienced a large price uptick over the last six months, with a 72.54% total return, which may interest investors looking for companies with strong recent performance.
For readers interested in a deeper analysis, there are 7 additional InvestingPro Tips available for Lundin Mining, which can be found on the InvestingPro platform. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. These tips provide valuable insights into the company's future expectations and stock performance, which could be crucial for making informed investment decisions.
Full transcript - Lundin Mining Corp (LUNMF) Q1 2024:
Operator: Good morning, ladies and gentlemen, and welcome to the Lundin Mining First Quarter 2024 Financial Results and Webcast Conference Call. [Operator Instructions] This call is being recorded on Thursday, May 2, 2024. I would now like to turn the conference over to Jack Lundin, President and CEO. Please go ahead.
Jack Lundin: Good morning, everyone and thank you for joining Lundin Mining’s first quarter 2024 conference call. Yesterday, we reported our operating and financial results for Q1. A copy of our press release and presentation are available on our website where a replay will also be made available. All figures presented in this presentation are in U.S. dollars unless otherwise noted. Before we begin our presentation, I would like to remind the audience that yesterday’s results and certain comments on the call include forward-looking information, and by their nature, are subject to risks and uncertainties. For further information, I will draw your attention to the cautionary statements on Slide 2 for reference and our latest relevant filings on SEDAR. On the call with me today, I’m joined by other senior members of our executive team. Teitur Poulsen, our Executive Vice President and Chief Financial Officer; and Juan Andres Morel, our Executive Vice President and Chief Operating Officer. Operationally, our assets performed in line with expectations during the quarter. Copper production is planned to be second half weighted this year as higher throughput and improved grade profiles, specifically from Candelaria, our largest station, which represents over 40% of our output, is anticipated. As a result, quarterly copper production for the company was 88,000 tons, and we are on track to meet our annual guidance, which is ranged between 366,000 tons to 400,000 tons. 46,000 tons of zinc were produced, and 33,000 ounces of gold were produced in the quarter. Higher zinc and gold production are planned to be back half weighted and Juan Andres will touch on each asset in more detail shortly. This translated into $363 million in adjusted EBITDA and $68 million in free cash flow from operations during the quarter. The company continues also to return capital to shareholders. And yesterday, our Board of Directors declared a regular quarterly dividend of CAD0.09 per share, which makes up part of the annualized dividend of CAD0.36 per share. Since we initiated our dividend policy back in 2017, we have distributed over $1.1 billion to shareholders, inclusive of share buybacks. We also updated our mineral reserves and mineral resources estimates in Q1, which have increased by 26% year-over-year to 10.6 million tons of copper, demonstrating that we continue to have drilling success at our assets and have been effective in generating shareholder value through the drill bit. I will now hand the call over to, Juan Andres, our COO, to talk about our production results.
Juan Andres Morel: Thank you, Jack, and good morning, everyone. The company is tracking to budget and production guidance on a consolidated basis for all metals in 2024. As mentioned earlier, copper production will be second half weighted primarily driven by grades profile at Candelaria, Chapada and Neves-Corvo. Copper production for the company was 88,000 tons for the quarter, which is a 43% increase over the same period last year. Gold production for the quarter was approximately 33,000 ounces. As mentioned earlier, grade profiles at Candelaria and Chapada will contribute to a stronger second half of the year for gold as well. At Candelaria, production was 33,000 tons of copper and 19,000 ounces of gold. Lower grades from the mine sequencing in the first quarter will increase in the second half of the year. We expect production at Candelaria to be approximately 60% weighted to the back half of the year, where grades will improve to 0.7% to 0.8% copper. Production at Candelaria is tracking to budget and still on target to meet guidance for the year. Caserones has performed well in the quarter and produced 34,000 tons of copper. High grades were partially offset by lower throughput and recoveries in the mill. During the quarter, processing plant experienced some unscheduled shutdown times for a conveyor belt repair and weather-related events. Higher copper cathode production was achieved from increased leaching rates during the summer months. Production at Chapada will also be modestly weighted to the second half of the year. During the quarter, higher than anticipated recoveries offset by lower mill throughput to produce 10,100 tons of copper, which is an increase over the comparable period of a year ago. Included in other copper production is Neves-Corvo, which produced 7,000 tons of copper, Eagle, which produced 2,500 tons, and Zinkgruvan with 1,600 tons of copper for the quarter. Neves-Corvo copper production is expected to be on the lower end of the guidance range for the year. Zinc production was lower this quarter at 45,700 tons, impacted by the fatality at Neves-Corvo in February. Lower throughput and grades impacted production at Neves-Corvo, which resulted in 26,500 tons of zinc. Production for copper is expected to be in the lower end of the guidance range for the year, while zinc production is tracking to guidance. During the quarter, Zinkgruvan produced 19,200 tons of zinc, which was in line with the budget. We expect zinc rates to improve slightly over the remainder of the year. Nickel production was 3,300 tons for the quarter, which was in line with guidance. However, throughput was impacted from equipment challenges that led to lower development grades in the mine. We expect this to improve in Q2. Operationally, our assets performed well, and we are seeing the benefit from our improved planning cycle and operational philosophy. We’re in a good position for the remainder of the year. Production is tracking to guidance with a strong second half of the year projected at several of our assets. Our asset optimization efforts continue across our Latin American sites, and we will look to update the market later this year on those initiatives. The focus of these optimization efforts is productivity, process improvements and efficiencies to drive down costs and increase margins over the life of our assets. In Chapada, we are already seeing results in lower mining costs, improvements in the mine plan, in-sourcing of some processes, to name a few. At Candelaria, the value identification phase is coming to an end and implementation will begin shortly. At Caserones, we’re in the process of identifying a number of opportunities and improvements. We expect to wrap up this work during the next quarter, which will allow us to move into the immediate implementation of these ideas. I will now turn the call over to Teitur to provide a summary on our financial results.
Teitur Poulsen: Thank you, Juan Andres, and good morning, everybody. So we’re starting with the top line, where we generated $937 million in revenue for the first quarter. Our revenue remains predominantly leveraged to copper with the metal generating 76% of the quarter’s revenue. Zinc and gold contributed 6% each and nickel contributed 4%. Approximately 80% of our revenue now comes from our South American assets, with Candelaria and Caserones being the largest contributors. Now turning to volumes sold and the realized pricing we achieved. During the quarter, we sold 86,200 tons of copper at a realized price of $3.98 per pound of copper, and 37,000 tons of zinc at $1.02 per pound of zinc. This, coupled with the sale of our other metals, generated revenue of $937 million, which was slightly below last quarter, but up significantly from the prior comparable period and is the third consecutive quarter with revenue generation in the region of $1 billion. As in previous quarters, a proportion of our revenue in the quarter is based on sold volumes, which have been provisionally priced, and therefore, the final pricing of this volume remains subject to adjustments and will be determined at a later date, normally during the following quarter. At the end of the first quarter, approximately 96,900 tons of copper were provisionally priced at $4.02 per pound and remained open for final pricing adjustments, as did 26,800 tons of zinc at $1.09 per pound and 99,000 tons of nickel at $7.53 per pound. Production costs totaled $567 million for the first quarter. Comparing to the same quarter last year, and adjusting for the Caserones cost during the first quarter this year, our production costs have fallen by around 12% on a like-for-like basis, mainly due to a weaker Chilean peso and lower mining costs at Candelaria and Chapada. We have seen TC/RCs come down substantially for the spot market sales contracts, which were entered into during the first quarter. Although these lower TC/RCs will not be recognized in our numbers until these sales will occur during the balance of the year. Other consumables, such as grinding media, electricity and fuel have remained fairly stable. Production costs at Chapada have come down materially, with the quarterly production cost being materially lower compared to previously. A large proportion of this cost reduction relates to our optimization efforts at Chapada and an improved mine plan, which better balances fresh ore and stockpile, which has reduced the amount of material we have to mine and move. As shown on the charts to the right, our unit cash costs are trending in line with our absolute production costs. With our annual production profile being second half weighted, we are on track to meeting our unit cash cost guidance at all sites. The capital expenditure track well to our guidance, with sustaining and expansionary CapEx of $269 million for the quarter, while the total guidance for the year is $840 million. Candelaria CapEx is weighted to the first half of the year, while the remaining assets will be more evenly split through the quarters. During the first quarter, Candelaria incurred $100 million in sustaining CapEx. Approximately half of the sustaining CapEx in the quarter was for stripping and underground development. At Josemaria, we spent $56 million during the first quarter, which is approximately a quarter of the guided $225 million guidance for the year. The capital expenditure in the first quarter primarily related to field activities for hydrology programs and delivery of grinding mills and gearless mill drives that will be stored in our San Juan warehouse facility. The company has continued with its proactive hedging strategy during the first quarter. With the recent weakness in the Chilean peso, the company added $950 million equivalent of Chilean peso hedges across the remainder of 2024 through to end 2026. We have also started adding to our Brazilian real hedge position, with the majority of these hedges being executed in April. For the remainder of 2024, we have hedged 89% of our exposure to Chilean pesos, 74% of our exposure for 2025, and 50% of our Chilean pesos exposure for 2026. Our Brazilian real hedging has a similar pattern, except for the remainder of 2024, where we have hedged 70% of our Brazilian real exposure. These hedging rates compare favorably to the FX rates assumed for our 2024 guidance, with guidance being based on CLP850 to the dollar and BRL5 to the dollar. Given that the company anticipates to be pricing a disproportionate volume of copper during May, we decided to lock in a pricing floor for part of this volume that will be priced during May. The company has entered into a zero cost collar copper price hedge for 21,500 tons of copper with a pricing floor of $4.10 per pound and a pricing ceiling of $4.52 per pound. Our first quarter key financial metrics are presented on this Slide 17. We generated adjusted EBITDA of $363 million and adjusted operating cash flow of $314 million, which includes a cash tax payment of $49 million. The company built working capital of $46 million during the first quarter but expect to significantly reduce working capital balance during the second quarter due to a change in payment terms for some of our sales contracts. Free cash flow from operations was $68 million and adjusted earnings was $45 million for the quarter. We finished the quarter in a moderate net debt position of roughly $980 million, excluding capital leases, which equates to a leverage ratio of 0.7x adjusted EBITDA. Our liquidity position remains strong with our revolving credit facility, having availability of $1.45 billion as of the end of first quarter. So all in all, the company remains in good financial health, with costs trending according to guidance and with some potential upside on the cost structure due to the weaker local currencies and anticipated lower TC/RC costs for some of the volume being sold for the remainder of the year. And with that, I’ll now hand back the call to Jack.
Jack Lundin: Thank you, Teitur. At Caserones, we have the ability to increase our ownership from 51% up to 70% over a 5-year period beginning in July, which will mark the 1-year anniversary since the acquisition. This 19% increase will add approximately 25,000 tons of attributable copper to the company’s production profile per year. We have the existing borrowing capacity on our current line of credit to exercise the option as well as an additional $400 million accordion as part of the original acquisition term loan agreement subject to satisfaction of precedent conditions. Now that Caserones is fully integrated into the company and operating within our asset planning cycle and optimization process, as touched on earlier by Juan Andres, we are analyzing this opportunity in detail and anticipate updating the market when a decision has been made internally in conjunction with our Board of Directors. Now touching on our flagship Josemaria project. Studies continued in the quarter for the open pit mine plan, resulting in various production and plant throughput scenarios, which would improve against the 2020 feasibility study metrics shown on this slide. Off-site trade-offs have been performed as well, which include concentrate transportation routes and infrastructure design work. Field activities were mainly associated with well hydrology work and exploration programs. Work continues on pump tests to update water models, which should be finalized around the midpoint of this year. Components of the grinding mills and gearless motor drives continue to be delivered in country and will be warehoused in our facility in San Juan for safe storage, as outlined by Teitur. Work continued on permitting with the technical review of the tailings dam design, the Northern Corridor access road and off-site power line EIAs. Government relations continue at both the national and provincial levels. At the national level, the project team is monitoring the new government’s incentive regime for large investments referred to as RIGI and the associated financial impacts that it would be – that it would bring to Josemaria. In conjunction, discussions on provincial royalties and fiscal stability with the authorities in San Juan progressed during the quarter. As mentioned by Teitur during the financial update, capital expenditures for the quarter at Josemaria amounted to $56 million out of the annual forecasted $225 million and continue to trend in line with our budget. Now to exploration. The drill season at Cumbre Verde was in its final stages at the end of the quarter and concluded prior to first snowfall of the season, which we experienced in April. We managed to drill 6 holes targeting the same mineralized system and structures that hosted high-grade mineralization on the neighboring property to Josemaria known as Lunahuasi, drilled by NGEx Minerals. Early indications show that we have hit mineralization and evidently are drilling higher up in the system. This data will continue to be gathered and analyzed, and will help us in our drill plan, and targeting our drill plan for next season. On the Chilean side of the district, several holes have been completed both at the Angelica oxide and sulfide target and at Caserones Deep, which is below the current pit shell of the Caserones deposit. These high-priority targets could add resources and mine life to the current operation. Drilling so far has been encouraging as we follow up on historical higher grade intercepts that were drilled previously by our partner. The results from the geophysics surveying that was completed this season on Caserones’ land package will be analyzed and overlaying with our existing database to highlight new targets. Our exploration initiatives within this highly prolific Vicuña District are still in the early stages, and the data we collected this season will help us vector in and refine our targets to advance our efforts. In conclusion, we are pleased to present this update on our performance for the first quarter of 2024. Our production guidance is showing a 15% increase in our copper production profile compared to the previous year on a 100% consolidated basis. On a net attributable basis, the potential exercise of the Caserones option would add an additional 25,000 tons of attributable copper production per year. Growth initiatives at Josemaria and through our district exploration campaigns create an exciting opportunity for significant growth in copper and precious metals production at the company. Operationally and financially, we continue to deliver according to targets and remain on track to achieve our annual guidance ranges for copper, zinc, gold and nickel. Thank you, operator. I would like to open the call for questions.
Operator: [Operator Instructions] Your first question comes from Orest Wowkodaw of Deutsche Bank (ETR:DBKGn). Your line is already open.
Orest Wowkodaw: Hi, good morning. It’s Orest from Scotiabank actually. I wanted to get an update from you with respect to the expected timelines for some of the key milestones at Josemaria, just currently wondering what your expectation maybe for timing for the updated technical report for the fiscal stability agreement and tied with that would be permits? Thank you.
Jack Lundin: Hi, Orest, this is Jack here. Thanks for the question. Yes, so we’re still working on the time line that we had at the beginning of the year. We’ve been concluding a lot of these trade-off studies. And I think within the next few months, we’ll be able to really finalize the last one really coming in as water modeling so that we can ensure we got life of mine water production rates for the life of the mine of the operation. So we should be in a position to conclude and update the technical report before the end of this year. And then, of course, as known, we’re working in parallel on a number of other initiatives. Government relations is one of them. We’ve seen the RIGI Bill, which was part of the last Bill, that President Milei sent to Congress. So that bill was actually passed by the Lower House and makes its way to Senate at the end of this month to be voted on. So we’re seeing progress at the national level as it pertains to incentivizing large investments. And at the local level, we’re negotiating and looking to form a framework for fiscal stability, still on target to do within this year and establish that. And then the third element, as known as working on bringing in or forming a strategic partnership for the execution of Josemaria. So we’re still trending on the original time lines, Orest.
Orest Wowkodaw: Okay. And just a quick follow-up, if I could. Should we anticipate that the strategic partner that would come after everything else is sorted out? Or could that actually come first?
Jack Lundin: Yes. We’re running these three in parallel and they could come at different times. And I don’t think one is required before the other. So we could see a partner come in before forming fiscal stability. Of course, all of these different activities that we’re working on influence how we execute the project. So having them come together at similar time will be optimal, but one doesn’t inhibit the other.
Orest Wowkodaw: Okay, thank you.
Operator: Your next question comes from Jackie Przybylowski of BMO Capital. Your line is already open.
Jackie Przybylowski: Thank you very much. And thanks for takin my question, guys. Maybe I’ll just follow-up on the question that Orest just asked on Josemaria. When it comes to the workflow here in the next – say, in the next year or so? I understand what you’re saying would be optimal for all of these different processes to come together at the same time. But can you talk a little bit about the discussions you’re having with potential strategic partners now? And how much of that may be already influencing the scope of the projects as far as your feasibility side is envisioning? Or do you expect that when you settle or when you decide on who the strategic partner or partners are, those parties might want to have some influence on that scope? Thanks.
Jack Lundin: Yes. Hi, Jackie, thanks for the question. So I think, we’ve been studying the Josemaria project for a long time, a number of years now. And I think when it comes to how you would execute a development for a large-scale open pit mining operation, I mean there’s not a lot of significant changes that you would have. It’s quite standard large-scale open pit. So in terms of infrastructure, in terms of size of throughput, we’ve basically pinned down and already ordered as demonstrated in the call and as well telegraphed, I think, by the company that we have the large equipment already making its way into countries. So for us, the execution plan, bringing in a partner, it will be modified based on what that partnership looks like. But ultimately, I think the most technical parts of this execution are already set. And in any discussions that we’ve been having, both publicly and internally, I think it’s well understood how to build the mine. So for us, we feel confident that advancing on the path that we’re on, while we control 100% of the asset, is still going to be aligned with any future partner that would be coming in. And also at the federal level and at the local level, discussing how we’re planning to execute the development and ultimately operate Josemaria is well understood. And what’s exciting about Josemaria is it’s the first development project that would be in the district. And so understanding that the infrastructure that gets put in place for Josemaria would likely be shared by future developments is a key component to how this project needs to come together.
Jackie Przybylowski: That’s super helpful. Thank you very much for that answer. And on a second question, if I can, in the release, you talked about Chapada having higher waste movement as you’re moving – or sorry, reducing the waste movement as you’re moving to different areas of the pit. And you talked about processing more stockpiled ore. I’m not – I wasn’t totally clear, so I was hoping you could just clarify for me. Is the processing of stockpiled ore sort of unique to Q1? Do you expect to get more into the higher grade ores again for the rest of the year? Or is this going to be a function of this change to the mine plan overall is stockpiled ore that will continue to be present through the year? Thanks.
Juan Andres Morel: Hi, Jackie, this is Juan Andres. Thanks for the question. This is a result of the asset optimization program. So we have optimized the mine plan, and we have significantly reduced the waste movement, and you can see that reflected on the operating cost in Chapada. And in order to do that, we have increased the amount of stockpile going to the mill. So we’re roughly feeding 30% of the mill feed from the stockpile. And during last year, we did a sonic drilling campaign to understand the grade distribution in the ore – in the stockpile. So now we have a better control of the grades and the recoveries from the stockpile. And that gave us the assurance to feed that ore into the mill.
Jackie Przybylowski: So sorry, just – you’re expecting the grades will get better through Q2 through Q4 this year, it will be better than Q1?
Juan Andres Morel: Yes. Yes. We have – as I said, we have a great model for the stockpile. And by doing that, we should be able to high-grade the extraction from the stockpile and grades should improve slightly in the second half of the year.
Jackie Przybylowski: Thank you very much. Thanks, Juan Andres and Jack, and Poulsen. Thank you.
Operator: Your next question comes from Bryce Adams of CIBC Capital Markets. Your line is already open.
Bryce Adams: Thank you, Jack. And thanks for the presentation. Again, this question is probably for Juan Andres. So I understand the grade profile should improve at Candelaria and at Chapada, but this question relates to the grade profile at Caserones and the outlook there. The grade profile was quite strong in Q1. Is that sustainable for Q2? At the minute, I’ve got the rest of the year grade as 0.40%. Is that fair? Or is there some variability to be expected? And maybe the grade profile can do a bit better than that?
Juan Andres Morel: Yes. Thank you, Bryce. You’re right. We expect the grades to improve along the year. Although we’re slightly weighted to the first quarter, we still have some opportunities to bring higher grades for the remaining of the year in Caserones.
Bryce Adams: Okay. So Q2 could be better than Q1?
Juan Andres Morel: I would say second half will be better than Q1.
Bryce Adams: Okay, thanks for that. I will see you soon.
Operator: Your next question comes from Ralph Profiti of Eight Capital. Your line is already open.
Ralph Profiti: Thanks, operator. Good morning, everyone. Jack, you talked about preconditions at the Caserones optionality decision. And just wondering if there are any that, or perhaps sort of cause for concern that may, say, delay or maybe need to be addressed on Lundin’s part? Or is these things largely in consideration of sort of administrative in nature.
Jack Lundin: Thanks, Ralph. Yes. I think a good question. We’ve had now, I guess, 10 months of operatorship, or 8 months of operatorship under our belt with Caserones and now that it’s integrated into the company. And as I mentioned in the presentation, it makes its way into our normal annual asset business planning cycle. And so therefore, we’re just wanting to make sure that we can give it the rigor that it deserves, both from an operator standpoint in the field and as it makes its way through our regular cycle to ensure that we have confidence in exercising that call option. I mean there’s no indication that we wouldn’t want to be doing that at this time. But of course, we just need to follow proper process before making a call option for that size. So I think it’s trending in the right. We haven’t seen anything in the operation that is making us feel less confident in the acquisition. It’s been actually performing better than expectation. And we’ve been getting good rates from the groundwater wells that provide the water required to operate the mine. And even with the conditions at altitude, we’ve had some extreme weather events with snowfall and high winds, and we see that it’s a strong operator – operating group there. So overall, I think we’re very confident in Caserones and we’re confident in its ability to actually get better as we look to optimize through various planning processes and once we really update the life of mine plan for 2025. So I would say it’s going very well for us so far.
Ralph Profiti: Jack, that’s great to hear. I appreciate that. And I want to come back to synergies between Candelaria and Caserones. $25 million to $30 million or somewhere around that range was previously thought. Can you sort of bring us up to date on that type of work, whether or not that is reflected in the guidance, where there perhaps could be more to come over the course of ‘24 and ‘25? And whether or not potentially you have another run where we could see upside to that number?
Jack Lundin: Yes. I’ll quickly hand it over to Juan Andres, but just before that, I think one area for us is to – and one area that we are focusing in on is operating cost and looking at bringing down the operating cost at Caserones as much as possible. Lower grade nature, high in altitude, and so you do have some associated costs to that operation that would be different at Candelaria, but there are also a number of initiatives where you can consolidate costs and ultimately bring the operating cost down. So that’s been a focus for us. And I’ll hand it over to Juan Andres, but I think it’s just important to say that overall, having the presence that we do in Chile and in the Atacama region really does give us a big opportunity to find more synergies.
Juan Andres Morel: Good morning, Ralph, this is Juan Andres. During Q1, we completed the creation of what we call the regional office in Chile. So that is a group that brought together the support functions from both companies, finance, procurement, HR, IT. So as you said, there’s more to come. In 2023, we were able to capture between $12 million to $14 million of savings from some low-hanging fruit opportunities. But this new group is looking at all the opportunities going forward. And we know that there’re a lot of opportunities that will be reflected later on our cost guidance. For 2024, we have reflected some of those, but we still think that there’s more to come.
Ralph Profiti: Excellent to hear. Thanks very much.
Operator: Your next question comes from Ioannis Masvoulas of Morgan Stanley (NYSE:MS). Your line is already open.
Ioannis Masvoulas: Yes. Hello, thank you very much for the presentation. A few questions left on my side. First one, given the tightness we’ve seen in the copper concentrate market and the recent rise in the copper price, have you seen a greater number of parties reaching out when it comes to strategic partnership at Josemaria? And have you seen a different nature of those parties in terms of having more potential offtakers? Or have these discussions and partners haven’t really changed in the past few months?
Jack Lundin: Yes. I think given the recent run-up in both base and precious metals, and I think, the world is starting to wake up and understand that there is struggle to meet the demand that’s growing for base metals. We have seen significant inbounds in interested parties. No, I think, new players to the game that we haven’t spoken to in the past, but maybe the level of interactions have definitely ramped up. And I think seeing what the opportunity is with Josemaria and what that project means to Argentina, but what it also means to building out the greater Vicuña District, definitely receiving more inbound and more at a frequent pace than the last kind of earlier in Q1.
Ioannis Masvoulas: Very clear. Thanks for that. And the second question, you’ve talked in the past about potential for cross-border aspects of Josemaria when it comes to water, power concentrate shipments. Can you perhaps give us an update on timing on this? Do you expect to get visibility this year? Or could it take a bit longer for some of these aspects to materialize?
Jack Lundin: Yes. I think certain elements within that will take longer to materialize. But the first one for us being how we intend to transport our production, our concentrate. We originally were looking at moving our product East. However, now based on recent engagements and understanding the project better and knowing that we have infrastructure built out in the West, and we have a port and infrastructure to sufficient capacity to basically transport concentrate from Josemaria out west through Chile, this very much does make more sense for us to be pursuing. And of course, we’ve had discussions both in Chile and Argentina locally and at the federal level on our logistics planning. So I think Phase 1 is looking at the transportation of concentrate. And then ultimately, when you scale up and looking at the sequence of how you can continue to add further value to the district, looking at things like water or power, I mean these are initiatives that we are looking at now, but I think might take a bit longer to mature. So right now, the focus is on looking at transportation of concentrate and going west through Chile.
Ioannis Masvoulas: Very clear. Thank you. And last question on the copper hedging you announced, which is opportunistic in nature, do you expect to ramp up this kind of activity? And could you potentially look at the other base metals that you’re exposed to?
Teitur Poulsen: Yes. Good morning. On the copper hedges, it’s right, as you say, it was an opportunistic move. I mean we look every month at how much volume we are likely to price in any given month. And what we saw in sort of March, April was that May look to be pricing a disproportionate amount of volume and with the run-up in copper prices we saw at that time. We just felt it was prudent to put a floor on some of that pricing volume in that particular amount just to protect so that the average pricing for the full year wouldn’t be disproportionately penalized in the event we saw a big reduction in copper prices during May. So it’s very much opportunistic in nature, and we do not intend to systematically hedge copper as we move forward. It will be measured on a case-by-case basis. And if we see similar opportunities, we might do some, but it would not be part of the base plan as such.
Ioannis Masvoulas: Very clear. Thanks, again.
Operator: Your next question comes from Stefan Ioannou of Cormark Securities. Your line is already open.
Stefan Ioannou: Thanks very much everybody. Just curious on Cumbre Verde, you mentioned, obviously, you got six drill holes into it, that’s great, and that it looked like you may have hit the system higher than what was intersected over on the neighboring Lunahuasi. Just wondering, does that – can I infer from that, that you sort of hit the targeted structures that were maybe just higher up in them where you may not see the grade that you might expect lower down? Or is there some other sort of aspects to it that we should consider? And will we eventually see these results? Or should we not – or should we anticipate we probably wouldn’t see them until next season’s drilling along with those additional good results to come 6 to 12 months from now?
Jack Lundin: Hey, there. Good morning. Great question. And for the questions related to exploration in the Vicuña District, we brought our VP of Exploration, Tim Walmsley, and he’s in the room with us, so he’ll be able to talk to that.
Tim Walmsley: Hi, Stefan. Yes, we’ve hit in a number of holes. We’re hitting highly mineralized veins and structures with grades approaching that of to our neighbor to the north, but over a thinner width to date, but they appear to be similar in nature and extremely promising. So we’re hopeful that as we get further west in our drilling, further north and slightly deeper, we’re going to see more exciting results, and those will probably come with longer drill holes in future campaigns.
Stefan Ioannou: Okay, that’s very helpful. Good to hear. Thanks very much, guys.
Operator: Your next question comes from Dalton Baretto of Canaccord. Your line is already open.
Dalton Baretto: Thanks. Good morning Jack and team. Back to Josemaria, Jack, given what you said earlier about sort of the infrastructure being in place and shared across the broader Vicuña District, I am just wondering, as you pull the Josemaria project design together, how much of the return metrics on this thing actually going to matter in terms of greenlighting this? And is there sort of a minimum IRR, let’s say, you want to accept on this project on a standalone basis?
Jack Lundin: Hi Dalton. Thanks for the question. Yes. I mean what WE ARE working on at Lundin Mining is making sure that Josemaria stands up on its own and that it can be built as a standalone asset. And so we have been working hard on looking at optimizations, on looking at flexing the mine plan and seeing what we can get in terms of optimal run rates, knowing that we have got three SAG mills and seeing if we can go from 150,000 tons per day up to anywhere around 200,000 tons per day and really trying to get into the high-grade core of the deposit as soon as possible to bring the payback, or shorten that payback, and therefore increase the economics of the project. So, for us, we know that Josemaria is one asset in the broader district. We have already got the operating mine on the Chilean side of the Vicuña District, and for us to do the same on Josemaria, which would be in the Argentinian side of the district. Everything that we are working on is making sure that it stands well on its own. Of course, we want to make sure though that we build this mine so that it can add future lines or it can be expanded to take on more capacity. And that capacity could come from anywhere else in the district on the Argentinian side, hence, why we are also hitting hard exploration efforts near Josemaria. But for us to control what we have today and maximizing the value of Josemaria is the focus for us, Dalton.
Dalton Baretto: Great. Thanks for that Jack. And then just on the Argentinian side, I know a lot of your peers as well have been meeting with Milei. And I am just wondering, is there the opportunity for you guys to sort of carve out your own terms, specifically as it relates to the project, or is it just the stuff that’s basically going to the legislature at this point in time?
Jack Lundin: No. So, you negotiate the fiscal stability framework at the provincial level. And what we are looking at is forming a framework for fiscal stability for Josemaria and the region around Josemaria. What would influence that fiscal stability framework, of course, is what’s happening at the Federal level. And so this large project investment incentive regime that Milei and his team have put through to Congress will influence the overall framework for how we look at Josemaria for how the effective tax rate and off-takes for the project will look. So, we are looking at working on this asset, not with a group of mining peers in Argentina, but Lundin Mining alone and looking at Josemaria and the region around it for fiscal stability and how we can achieve optimal terms for moving that forward.
Dalton Baretto: Great. Thanks. And then just one last one on the partnership process, is it still your intention to keep control of the project? And is there any sort of one key criteria you are looking for in a partner, whether it would be technical or balance sheet?
Jack Lundin: Yes. I think right now, when it comes to partnership for us, we want to have a seat at the table. We want to make sure that we can have a significant influence over the development, and ultimately, the operation because we know that Josemaria is going to be something that ignites the broader Vicuña District to be developed. And we are focused on growing and being significant players in the district for the long-term. So, that’s a key requirement for us in any future or potential partnership that we would form. And so I think as well, given the fact that the Lundin Group has been involved in Argentina for the better part of 30 years, think we have the team and the capabilities in country. And also from a project standpoint, we have got a very strong project team on Josemaria that’s capable of leading the development. So, remains to be seen yet on what that arrangement looks like for the partnership. But for us, having support for technical and financial backing and for making sure that we have a sound execution plan all come together in influencing how we form that arrangement.
Dalton Baretto: Great. Thanks Jack. Good luck to you guys.
Jack Lundin: Thank you.
Operator: Your next question comes from Greg Barnes of TD Securities. Your line is already open.
Greg Barnes: Thank you. A couple of quick questions for Juan Andres, I think you said you are anticipating 0.7%, 0.8% grade at Candelaria in Q4 this year?
Juan Andres Morel: That’s basically for second half of the year, H2.
Greg Barnes: Okay. Great. Thank you. And secondary, I also think you said for Candelaria, you have completed the asset optimization studies that you were doing and ready to implement them. I am wondering what impact you expect on the asset as a result of that or costs or cost reductions that you might see?
Teitur Poulsen: Yes. As I said before, we are looking at all aspects, reducing costs, increasing productivity, efficiency across all the processes in our assets. So, we are – as I have said before, we are finalizing the detail design of these initiatives, and we will be moving into implementation shortly. And we are looking at updating the market at the end of the year on the impact of these initiatives.
Greg Barnes: Okay. Perfect. Great. Thank you.
Jack Lundin: Thanks Greg.
Operator: Your next question comes from Daniel Major of UBS. Your line is already open.
Daniel Major: Great. Thanks. Thanks for the questions. Yes. First question just relates to tax somewhat. It has two parts to it. You have been recognizing P&L tax from Caserones, obviously, since you started consolidating the asset, I think $22 million of corporation tax in the first quarter. My understanding was that because of deferred tax allowances you are not paying a huge amount of cash tax at this asset. Can you give us an outlook on the cash tax and the overall tax rate at Caserones? And then the second question, just on the group level, where would you expect group effective tax rate, the P&L and cash to be for 2024, 2025?
Teitur Poulsen: Yes. Thanks for the question. I mean on Caserones, we have significant tax losses, as you point out, on corporation tax to the tune of $4 billion. So, unless things go extraordinarily well or copper prices go to very elevated levels, we do actually not anticipate to pay any cash corporation tax on that asset. And if we do, it will be a very nice problem to have. But obviously, the mining royalty tax will still apply to Caserones, as it does to Candelaria. And on Caserones, we are grandfathered on the old regime on Caserones to – out to 2027, I believe it is. So, from 2028, we will switch into the recently approved new mining royalty tax regime in Chile, just as Candelaria is already under that new regime as we speak. So, that will be the thesis going forward. So, there will be some cash tax on Caserones, but it will not be in the form of corporation tax. It will be in the form of the mining royalty tax. And I think going forward on the group consolidated tax rate, I mean we would typically hover around 35% to 40% sort of effective rate. Obviously, it’s a progressive mining royalty tax in Chile, so the higher our margins, the higher that effective tax rate will be, but I would expect it to be in that ballpark going forward.
Daniel Major: Okay. Thanks. And sorry, just to be clear on the Caserones, you will continue to book P&L tax like you have quoted ‘22 corporation tax – you just – that will get netted out and you don’t pay much from a cash tax perspective?
Teitur Poulsen: Yes, we pay no corporation tax. So, that’s all deferred to the extent we believe we can utilize losses. Yes.
Daniel Major: Okay. And yes, the second question you detailed the issues at Neves-Corvo in the first quarter, the fatality and the grade, etcetera. But net cash cost of $3.25 in the first quarter makes the guidance for the full year look a stretch from a cost perspective and also from a production perspective from some standpoint. So, is the guidance still achievable at Neves-Corvo for this year?
Teitur Poulsen: Yes is the short answer. We believe it is achievable. We have guided between 195 to 215 for cash costs for the year. And we, at the moment, it’s fair to say we will be probably in the upper half of that range, but still within the range is our current forecast.
Juan Andres Morel: And on production, we are tracking well to meet the zinc guidance. And as we said before, for copper, we will be probably on the low end of the guidance.
Daniel Major: Okay. Thank you. And just a clarification from the last question, I think I didn’t just quite catch it. Where were you expecting the grade profile at Candelaria in the second half?
Jack Lundin: The second half is around 0.6, 0.7 for the second half of the year at Candelaria.
Daniel Major: Got it. Thanks a lot.
Operator: Your next question comes from Pierre Vaillancourt of Haywood Securities. Your line is already open.
Pierre Vaillancourt: Thanks. Jack, I was wondering if you could be a little more specific on the RIGI Bill, what are the benefits to the project and just what kind of impact that’s going to have on the project and on timing because you announced that technical study is to be out at year-end. So, does that come out one way or another, just looking for a little more clarity on that?
Jack Lundin: Yes. So, what we are seeing right now with the RIGI Bill that was as part of the larger set of bills that went to Congress, the overall effective tax rate would go down by, I think more than 10%. We would have a VAT tax holiday. There would be no export tax on concentrate – copper concentrate sales. And so the overall effective tax rate would be reduced significantly, which of course, influences our economic model and the project economics, and therefore, have a bearing on certain elements of how we would plan to execute Josemaria. So, those two elements kind of go hand-in-hand, Pierre, I would say, but it wouldn’t change significantly. As I was mentioning earlier on, on the call, we kind of do have the main route that we want to go in terms of how to develop Josemaria, but it would have positive – significant positive impacts and benefits to Josemaria if we were able to form fiscal stability with the RIGI Bill influencing the overall government off-take.
Pierre Vaillancourt: Okay. Thanks. So, one way or another, the technical study comes out by year-end. Is that safe to assume?
Jack Lundin: I would say that there is...
Pierre Vaillancourt: With or without a partner as well, it sounds like you are a little flexible on timing for a partner relative to the study. It sounds like they are kind of independent almost. Is that a safe assumption to make?
Jack Lundin: Yes. I mean I think depending on where all of these are coming together towards the end of the year, they can influence each other. We are in a position where we can close out some of these trade-offs that would influence the technical report. And so we are very much keen to advance with Josemaria, but we need to be pragmatic in how we approach. It’s a large-scale project. And so therefore, determining that bringing in the partnership makes sense for this and for the longer term vision that we have in the district. We want to make sure that that technical report is sound in nature and can be used as a blueprint for development. And so any prospective partner would want to have some influence on the execution plan. And therefore, if we were to update a technical report before bringing in a partner, there may be updates required, but we will be in a position, I would say, in the second half of this year to have a technical report updated.
Pierre Vaillancourt: Okay. Thanks. And last thing, so politics being what they are, this RIGI, I mean like is there any kind of timeline on that, or if you just kind of to be determined?
Jack Lundin: Well, as I was mentioning, we have seen that this week, the Lower House approved the bill that included the investment incentive regime or the RIGI component. And now in the end of May, it will go to Senate for a formal vote on this basket of articles. And within that, if the RIGI does get approved, then that would influence us for our fiscal stability. So, it would actually accelerate our timeline in terms of forming a framework for fiscal stability. So, this month is going to be a critical month at the Federal level for Milei, and obviously it will impact our project.
Pierre Vaillancourt: Okay. Alright. Thanks Jack.
Jack Lundin: Thank you.
Operator: Your next question comes from Orest Wowkodaw of Deutsche Bank. Your line is already open.
Orest Wowkodaw: Hi. Thanks for taking the follow-up and again that’s Scotiabank. Just a quick one for me. Just with large-scale M&A returning to the copper business with Anglo American (JO:AGLJ) apparently going into play, I am just wondering if that is having any impact on any of your discussions with potential majors from a JV perspective around the Vicuña District and Josemaria? I am just wondering if there has been a shift of priorities in terms of going after producing assets rather than interest in development assets?
Jack Lundin: Hey Orest. Thanks for the question. I think given what we have seen that there is going to be an uptick in M&A, I think both in companies that have operating assets and in large-scale project developers. And so as I was mentioning, our conversations and discussions with prospective partners, I mean they have been only heating up because of the fact that, yes, there are companies in play that are currently producing copper today. The issue with supply is that there is not enough coming online over the next 3 years, 5 years, 10 years. So, whether it would be producing assets or near-term producing assets, there is definitely an inbound in interest. And with the copper price ticking up, and we have been bullish and remain very bullish on the prospect of all base metals going up as well as precious metals, I think we will still be in a strong position to negotiate a good deal in terms of bringing in a partner. So, discussions continue to be ongoing and only ramping up with existing and new potentials.
Orest Wowkodaw: Alright. And just one more, I mean Lundin has been very successful bolting on producing assets over the years. So, I am just wondering, are you 100% focused right now on Josemaria and obviously, the extra option at Caserones, or is there still potential that we could see Lundin Mining active from an M&A perspective for other producing assets?
Jack Lundin: I think we always want to stay opportunistic and look at what the options are and the opportunities that exist out there. Of course, external or macro influential components will influence how we drive the strategy of the business, and we have to be able to adapt in the industry that we are in. And I think that we have been able to display that with Lundin Mining and the existing asset base that we have. And so we have a very strong portfolio with existing near-term immediate growth options and future longer term growth opportunities. And so we are comfortable with the assets that we have today. However, if an opportunity comes our way, and it makes sense economically and from an operating philosophy standpoint for our business, then we would entertain those opportunities. And I think that opportunities more will present themselves given the environment that we are in today. So, we definitely, Orest, I would say, remain opportunistic. Our focus is growing our business in a disciplined way through scaling up and predominantly with copper, and we continue to drive that same strategy.
Orest Wowkodaw: Thanks Jack.
Jack Lundin: Thank you. I guess with that, we will draw the call to a close. I appreciate everybody and the questions here today.
Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation and you may now disconnect.
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