Hudbay Minerals Inc.
Q3 2018 Earnings Call Transcript

Published: 1 Nov 2018

[Operator:]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hudbay Minerals Incorporated Q3 2018 Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, November 1, 2018 Eastern Time. I will now turn the conference over to Ms. Carla Nawrocki. Please go ahead, ma'am.

[Carla Nawrocki:]

Thank you, operator. Good morning and welcome to Hudbay's 2018 third quarter results conference call. Hudbay's financial results were issued yesterday and are available on our website at www.hudbay.com. A corresponding PowerPoint presentation is also available and we encourage you to refer to it during this call. Our presenter today is Alan Hair, Hudbay's President and Chief Executive Officer. Accompanying Alan for the Q&A portion of the call will be David Bryson, our Senior Vice President and Chief Financial Officer and Cashel Meagher, our Senior Vice President and Chief Operating Officer. Please note that comments made on today's call may contain forward-looking information and this information, by its nature, is subject to risks and uncertainties, and as such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the company's relevant filings on SEDAR and EDGAR. These documents are also available on our website. As a reminder, all amounts discussed on today's call are in US dollars unless otherwise noted. And now, I'll pass the call over to Alan Hair.

[Alan Hair:]

Thanks, Carla. Good morning, everyone. Firstly, I wanted to note that our requisition for a missing of Hudbay’s common shareholders has been submitted by a shareholder for the purpose of considering an advisory resolution with respect to certain potential transactions. As per our October the 23rd press release, Hudbay’s board will respond in due course. The purpose of this call is to discuss our quarterly results. So when we get to the Q&A portion of the call, I'd be happy to take questions on those results. In the third quarter, we executed well against our strategic priorities and delivered strong financial results, as we continued to focus on developing and operating our portfolio of high quality assets in mining friendly jurisdictions. In particular, at Constancia, we generated record mill throughput and record copper recoveries for the mine as a result of our continued optimization efforts. In Manitoba, we delivered solid results and believe the optimal processing scenario for the Lalor gold and copper gold zones is to refurbish the new Botania [ph] mill. And at Rosemont, pending the receipt of the Section 404 Water Permit from the Army Corps of Engineers, we are positioned to finalize the financing plans for the project and move the project into construction. Consistent with Hudbay’s strategy of optimizing its current operations and evaluating and pursuing complementary growth opportunities, we also enhance the transaction to acquire 100% of Mason Resources. This acquisition provides us with ownership of a deposit in a mining friendly jurisdiction that is similar in scale to Constancia and Rosemont at a cost of $50 million, a third of our 2018 exploration budget. It will be strongly accretive to resources per share at a minimal cost and is an excellent example of how our experienced corporate development team is driving value creation today and adding to the company's high quality pipeline of copper projects to support longer term value creation for shareholders. Despite weaker metal prices during the quarter, our net profits and earnings per share were $22.8 million and $0.09 respectively. We’ve produced 40,000 tons of copper in the third quarter, up from 37,000 tons of copper in the second quarter of 2018. Based on results to date, we are on track to meet all of our production and cost guidance expectations, as revised for Manitoba costs last quarter. These solid results continue our track record of driving consistent operations at our mines. We also continue to generate strong free cash flow and reduced net debt in the third quarter. Operating cash flow before change in non-cash working capital was $122 million with total cash flow generation of $557 million in the last 12 months. Since 2016, we have reduced our net debt position by more than $700 million, ending the quarter with a net debt of $516 million. Now, let's turn to our South American business unit, our Constancia mine where we achieved a few significant operational milestones. We delivered a very strong quarter of mine and mill throughput, posting new records in both quarterly mill throughputs and copper recoveries. While recoveries will vary from quarter to quarter, depending on the complexity of the ore feed, we are seeing good results in the recovery improvement initiatives that we are implementing and we are on track to deliver the recoveries anticipated in the technical report issued earlier this year. We also realize good copper head grades from Constancia in the third quarter. This was a result of changes in the sequence of the mine plan, including stockpile movements in an effort to maximize recoveries. It should be noted, we have a schedule semiannual 5-day maintenance turnaround in Constancia later this month. To put these improvements in perspective, when we commissioned Constancia, we delivered industry best performance in the initial ramp up. Having completed the initial ramp up, our priority was optimizing ore throughput. Based on enhanced plant availability, we have achieved that objective and ore throughput is consistently running at or above design rates. We next turned our focus to improving copper recoveries. We have made significant progress on this in the third quarter. Aside benefit [Technical Difficulty] how to optimize molybdenum processing plant, which we’re now running much more frequently and with better overall results. We are continuing to pursue these improvement initiatives in the fourth quarter. As anticipated, Constancia unit cost also declined in the third quarter compared to the first half of 2018, which included a signing bonus associated with the 3-year collective bargaining agreement as well as costs associated with the major maintenance turnaround. For context, based on Wood Mackenzie data, Constancia is the lowest cost sulphide open pit mine in South America. I'm very proud of our performance in Constancia and I want to recognize the outstanding efforts of our team there. Based on the successive development in Constancia and track record of building social license to operate, we are recognized in Peru as a leader in community relations and our track record compares very favorably to other nearby mining operations. Since acquiring Constancia, we have entered into over 90 agreements with different communities and local governments and seen multiple elections and changes of local administrations without significant interruptions. Turning to our Pampacancha deposits, our discussions with the local community to acquire the surface rights are progressing. We are continuing to be patient to ensure that any agreement supports our longer-term exploration plans for Constancia and we continue to expect to be able to reach an agreement in time to begin mining at Pampacancha in 2019. As a testament to the measure of the consistent approach we’ve taken with community relations, we recently entered into an agreement with one of the four local communities for exploration access to some of the highly prospective properties within trucking distance of Constancia that we acquired earlier this year. In summary, between operational optimization and the development of Pampacancha nearby exploration targets, we're making excellent progress in growing the long term value of our copper success story. Turning to Manitoba, at Lalor, ore mined decrease by 18% in the third quarter compared to the same period last year. Lower production tonnage was primarily attributed to the exhaust fan failure in June that constrained ventilation and production for mirrors in the mines until mid-August. The mine has also been affected by a shortage of skilled workers and the followed ground in August delayed the timing of a production stall. The followed ground was limited in impact and it's not expected to have any long term effects of production or reserves and resources. We have identified the root causes of our setbacks in 2018 and have taken steps to address them and ensure Lalor’s position for long term success. Specifically, we’ve strengthened the on-site team, changed our operating practices and have addressed the resourcing constraints. The new Lalor [indiscernible] normal thresholds. We now expect the Lalor production ramp up to 4,500 tons per day to occur in the first quarter of 2019. But based on the long history in Manitoba and we have discovered mine and reclaim numerous mines in the province. Our Reed mine cease productions is planned in the third quarter and all of the Reed ore is now being milled. Closure activities were completed ahead of schedule and under budget with reclamation continuing in 2019. We are very proud to read an excellent example of our commitment to responsible and safe mining, located entirely within a provincial park, Hudbay’s track record at all stages of the mining cycle facilitates the timely receipt of permits and during the mine’s construction, there were zero lost time accidents. Reed was designed from the start to avoid impacts in the surrounding environment and foreclosure and reclamation to return this site to its original condition. I'd now like to provide an update on the work we've done over the last several months on the Lalor gold and copper gold zones. We've completed our trade ore studies and believe that the optimal processing scenario is to refurbish the new Botania gold mill with significant upside potential from nearby satellite deposits. I refer you to slide 13 of our presentation. The northern portion of Lens 25 was a key area of focus of infill drilling and test mining this year. In addition, we have undertaken the full review of all the resource models that were supporting our previous resource and reserve estimates, starting with the copper and gold rich Lens 27. We are encouraged by the very positive results that have come out of this work to date and expect an increase in the tonnage of high grade copper and gold resources. In parallel, we have continued to progress the baseline studies required to the permit modifications of the new Botania mill as well as our regional gold exploration program. These efforts were conducted in support of trade off studies to assess the optimal mining and processing options for the gold mineralization at Lalor. This work supports the conclusion that the refurbishment of the new Botania mill, including the addition of a copper flotation circuit is the preferred option for maximized and new value of the gold rich resources from Lalor. This substantially increased gold production will provide enhanced optionality to Lalor. Refurbishing new Botania will pave the way for the creation of substantial upside, both from the additional resources and exploration potential of the Lalor mine and this nearby satellite deposits and also from our gold exploration potential in the Snow Lake belt. We expect to provide more details on an updated mineral reserve and resource estimate for Lalor and other details in the first quarter of 2019, once we have advanced the engineering and mining planning work. The upside potential for mineralization to processing the new Botania mill extends from Lalor to the old mine, where we have several historic recurrences of copper and gold mineralizations with the existing ramp. These copper gold rich zones, which represent classic pathways to VMS deposits will be drill tested over the next three months. This summer, our exploration team already intersected 5.2 meters at 2.7% copper and 1.2 grams per ton gold in whole CH1807 at a depth of 1200 meters. This intersection sits on the edge of a large bore hole plate model from 3 holes, some 600 meters away from the center of connectivity where we’d expect to find high grade mineralization. In addition, Hudbay controls a very large land package perspective for gold mineralization in the Snow Lake region. Geochemical sampling and geophysical surveys conducted in high priority areas during the second half of this year will be used to define drill targets to be tested during the winter in the immediate vicinity of the historical new Botania mine. The upside potential from the non-mineral resources of nearby satellites deposits includes historical estimates of mineral resources at Hudbay’s new Botania Snow Lake deposits as well as the recently acquired Wim deposit. We're pursuing a strategy of optimizing the value of our gold resources in Manitoba through the refurbishment of new Botania. This approach balances our near term focus on maximizing zinc production and advancing the restart of new Botania with a compelling medium term plan to capitalize existing infrastructure and significantly grow gold production from wholly owned deposits that are unencumbered by any royalties or streams. I’ll now turn to our Arizona business unit. We're very pleased to have in our pipeline a high quality development projects with well-established infrastructure Arizona. We are well positioned to move the Rosemont project into construction soon after permitting is complete. It's important to note that since our acquisition of Rosemont, we have secured 6 new permits for the project, including the final record decision from the US Forest Service and successfully defended 5 lawsuits related to Rosemont permits. The next milestone is obtaining the Section 404 Water Permit from the Army Corps of Engineers. While the permits in process for Rosemont has been moved lengthily, we respect the diligence exercised of the permitting agencies in ensuring that their processes are robust. We are confident that we will receive the remaining required approval based on our permitting track record to date. Once we receive the final permits, we will finalize our financing and construction plans for the project. As noted in previous disclosure, spending in the first year of Rosemont three year construction period is expected to be less than $150 million, a substantial portion of which is scheduled to be sourced from our existing funding partners. As we consider our financing plans for Rosemont, we are working within a disciplined framework that we developed in 2017, which was carefully considered and approved by our board of directors. It sets clear criteria on financial risk tolerance and our disciplined approach to financing our pursuit of long term growth and value creation initiatives. Unlike many of our peers, we were not required to issue discounted equities, sale assets or hedge metal prices in 2016 and our framework is intended to ensure that we can continue to grow the business prudently. In the same way that we were disciplined in our approach to acquiring Constancia and Rosemont, we are disciplined and conservative when considering any potential acquisition. We have a long held belief that the most significant opportunities for value creation are through exploration and mine development. We have unique strengths in these areas together with our strengths in community relations and we prioritize opportunities that enable us to apply those capabilities. We also screen acquisition opportunities against a number of longstanding stringent criteria. We target copper deposits in select mining friendly jurisdictions in the Americas with the potential to be long life low cost operations once developed. Potential opportunities should involve a meaningful operating role for Hudbay and be accretive on a per share basis, primarily net per share and reserves and resource per share. We look at opportunities at all stages of development from other states exploration to producing assets. Hudbay’s reviewed over 100 assets and participated in over 30 processes over the past five years and have been outbid for assets a number of times due to a strict focus on accretion and value. The only material acquisitions we have made, Constancia and Rosemont, have substantially enhanced the portfolio of assets, particularly as we have brought our expertise in mine development to them. An excellent example of our acquisition strategy in action is agreement we announced yesterday to acquire a 100% of Mason Resources and the Ann Mason project. Ann Mason is a large copper porphyry deposit located in the Yerington copper district of Nevada. Hudbay has been a shareholder of Mason Resources since 2017 and we have followed the project closely for several years. The project is a large existing resource with 1.4 billion tons, grading 0.32% copper in the Mason indicated category, plus 600 million tons grading 0.29% copper in new category. The deposit also contains byproduct gold, silver and molybdenum. The Ann Mason deposit is similar in scale to Constancia and Rosemont. We view Ann Mason as an advanced exploration property and it will be a priority exploration initiative. The deposit remains open in several directions, there are high grades targets in the property and several untested IP anomalies. Further, the US Army Corps has confirmed that 404 Water Permit will be required at Ann Mason. The Ann Mason acquisition meets a stringent growth criteria, builds in our successful acquisition of Constancia and Rosemont. This is a high quality asset that provides the deposits of significant scale as one of the largest undeveloped copper porphyries in North America and substantially increasing Hudbay’s measured and indicated resources. The transaction is highly accretive on a resource per share basis and we are paying approximately $0.02 per pound of measured and indicated copper in the ground. Ann Mason has the potential to be a long life, low cost mine in one of the world's best jurisdiction for mining and adds a significant asset to a pipeline for development after Rosemont. It is at a stage where we can leave it to our management expertise in exploration, engineering, parenting and construction to maximize the project’s ultimate value for our shareholders. We are constantly evaluating new opportunities in screening for high quality assets that fit our growth criteria. But I want to highlight the lack of actionable opportunities in the copper space. During the last cycle, there were almost no new significant discoveries and in many of the projects in slide 23, have been known for decades. This in part is setting the stage for the pending supply gap in copper and we are pleased to be adding Ann Mason to our pipeline as a long term development option. Ann Mason is the third largest resource held by junior company in our operation jurisdictions in Canada, United States, Peru and Chile. The Ann Mason acquisition delivers a deposit that is similar in scale to Constancia and Rosemont for a net acquisition cost of approximately $15 million or one third of the 2018 exploration budget. The Mason Resources team has done an excellent job of progressing the deposits to where it is today. We look forward to advancing Ann Mason within Hudbay and adding value to exploration, which reviews one of the key differentiators as evidenced by our track record of increasing reserves at each Constancia, 777 and Lalor, which substantially increased the returns of our initial mining capital investments. With a strong foundation in Constancia and Lalor, near term development opportunities in Rosemont and Pampacancha, the potential to substantially increase gold production at Lalor and the addition of Ann Mason to our earlier stage development pipeline, we believe we have made excellent progress in utilizing both exploration and M&A to build out a robust growth pipeline. In conclusion, we're pleased with our operating results and financial performance as we continue to generate strong cash flow from unhedged copper and zinc production. Our portfolio of long life, low cost assets in mining friendly jurisdictions in the Americas provides relevant skills investors with a meaningful growth profile. We're proud of our proven drill and build value creation strategy and have the management experience and skill to deliver on those strategic plans and continue to grow long term shareholder value. Before I turn over to Q&A, as I mentioned, we'd be pleased to take your questions on the quarter.

[Operator:]

[Operator Instructions] And we will hear first from Orest Wowkodaw.

[Orest Wowkodaw:]

Hi good morning. Wanted to get a little bit more color on the operational performance improvement at Constancia and specifically the -- both the grade and the recovery, maybe, we could start with the recovery, 85%, I mean that's a big step up from what we've seen historically, how sustainable do you think that is moving forward and do you think that's going to be volatile or could we -- is that going to be jumping around a fair amount as we move into the next couple of quarters.

[Alan Hair:]

Orest, I think it's fair to say that the recovery will be variable, depending on the particular ore types we’re treating. So I think you can see some variation from quarter to quarter. What we are confident with though is that I mean, for example, for this year, we're heading towards the basic recovery in the technical report and I think we're confident of those recovery numbers going forward. But there will certainly be quarter to quarter variation depending on ore type, zinc content and things that affect recoveries.

[Orest Wowkodaw:]

So was there something special about the Q3 ore mix that took the recoveries that high.

[Alan Hair:]

Certainly, I think there might have been more hype in Q3, but there are other factors that come into play. We are getting a better handle on managing blending from a recovery perspective. So there's many more movement too from stockpile, but we're also implementing a number of meteorological improvement initiatives, so as to say, we're confident on achieving and perhaps even exceeding ultimately the recovery stated in the technical report.

[Orest Wowkodaw:]

Okay. And then how about the grade? I mean, we saw an expected pickup in copper grade, whereas your guidance in the tech report was indicating a continued decline. Is that just a one-off here in Q3 and should we anticipate that grade to fall close to back around the 0.40 mark moving forward or you can just -- is there some changes going on in the mine plan?

[Alan Hair:]

It’s obviously short term optimization of the mine plan. I mean I think you see the grades may be drop back slightly in Q4, but I think overall, we’d expect 2018 to be slightly higher than the technical report number, we’ll obviously provide 2019 guidance earlier in the new year.

[Operator:]

And our next question comes from Lawson Winder.

[Lawson Winder:]

So just sticking with Constancia, I just wanted to inquire about the surface right negotiations, so maybe just from a couple of points of view. So in terms of last quarter where you noted that negotiations were -- you were also pleased then, and they were more economic in nature, maybe just update us on what's happened since the last call till today in terms of whether -- what sort of boxes you've checked that leads you to conclude that you're still pleased? And then also maybe just help us think of this in terms of how many parties are still involved so who's left to sort of get on board before you can wrap this up. Thank you.

[Alan Hair:]

Okay, well at this point, the fact that -- I think I mentioned that we negotiated a large number of these agreements in our time in Peru. We’re rapidly approaching eight years in the country now and have been successful in achieving the desired end result in all our various community negotiations and we don't see the negotiations with Pampacancha being any different. Things have slowed down slightly right now, because we've just gone through a period of municipal elections last month and community elections this month, but we remain confident given the status of the dialog to date that we will get an agreement in place. As I mentioned in the script, we’re also looking -- bigger picture, we’ve consolidated the land position to the Northwest of Constancia what we believe is very prospective area. In fact, we coveted that background even before we acquired Constancia. We were finally able to get over the line earlier this year and that will involve negotiations with another four different communities from the one we're talking to around Pampacancha. We've actually already been successful to get exploration access on one of the targets. But, I mean, we look at our overall community relations in the broader picture and we’re very mindful of what we do for one community would be potentially replicated for others.

[Operator:]

And our next question comes from Greg Barnes.

[Greg Barnes:]

Alan, I'm not going to ask question strictly related to quarter, but with Rosemont and I appreciate it is your top priority and you -- I’m not going to do anything to jeopardize funding it, how long though can you keep it in that position, if the permitting process continues to take a longer say another 12 months and you still don't have a 404, will your attention start to shift elsewhere.

[Alan Hair:]

Certainly, the terms in process has maybe taken longer than we originally anticipated, but we are confident that that process is coming close to a conclusion. So I don't think that will be in the scenario that you outlined, Greg.

[Greg Barnes:]

Just wanted to shift to Lalor. Particularly on the mining, when do you think you can start to mine the gold zone on a consistent basis and at what rate and what mining methods are you thinking about there?

[Alan Hair:]

As I indicated in the script Greg, I think we're looking to provide more detail in that in Q1. We’ve now got the direction like, we’re now moving on to the next phase to nail down some of those particulars.

[Operator:]

And moving on, we have a question from Oscar Cabrera.

[Oscar Cabrera:]

Alan, let me just get back to Constancia, I believe in your remarks, you said that you expected to have a solution on the Pampacancha land rights in the first quarter. When do you think you can start mining ore from the deposit there?

[Alan Hair:]

Just to be clear, Oscar, I said, we'd expect to get agreement in place in 2019. If -- there's a certain amount of lead time obviously, but if we get an agreement by, say Q2, we should be mining by Q4 or that’s our timeline.

[Oscar Cabrera:]

Okay. Thanks for that. And so if -- assuming that that's the case that you start effectively mining in 2020, how should we think about or are there any stripping or anything else you have to do in the main pit, so how should we think about the combined unit operating cost, we had guidance of 750 to 920 this year per ton. Would the cost be around the same or would it increase?

[Alan Hair:]

Well, I think we’ll give a specific cost guidance going forward as we normally do. I mean, the technical report plays out both the material being mined from Constancia around from Pampacancha, so I think you can factor based off of those numbers.

[Oscar Cabrera:]

Because I think we have talked about a reduction on your precious metals production, which is on a net byproduct credit, that affects the cost, but just I’m more curious in terms of, if you have to do anything in particular to the other pit so that you can just maintain cost or mining cost around where it is?

[Alan Hair:]

I think with our short term mine plan, we're always optimizing our operational performance, depending on exactly where we are within this plan and I referenced the fact there we’re now getting more experience in terms of our ability to blend the material better. So I think on a very broad bases though, just factor of the technical report numbers is all I can really suggest.

[Oscar Cabrera:]

And then if I may on Manitoba, just I understand you're giving those numbers on the first quarter, but could you remind me more or less of the scope of the project. I believe we have talked about $400 million in CapEx and not a very long time to get production ramped up and in addition to that I'm assuming that you will remain processing zinc as you are now, so should we expect the combined mine and mill unit operating cost to remain similar to what 2018 guidance was?

[Alan Hair:]

I think Oscar, really you have to wait until next year, as I mentioned before, we can give a little bit more detail on those subjects.

[Oscar Cabrera:]

Okay, well. And then lastly please if I may, you comment on skilled labor in Manitoba, is this something to be concerned with, you think that can put inflationary pressure to attract more people going forward.

[Alan Hair:]

It was a problem. I think we’re confident that we've addressed it now, applies both to managerial and technical skills as well as actual miners. We’ve had to adopt a more fly in fly out approach to stop Lalor from a senior management and technical position and we're currently employing more contract miners at Lalor. So yes there has been some additional costs associated with that, but those are included in our guidance numbers. Those steps have been taken Oscar, just to be clear, so we think that we've addressed those concerns that maybe led to the slight drop in performance in the middle of the year.

[Operator:]

And we'll hear next from Stefan Ioannou.

[Stefan Ioannou:]

Just I guess still in Manitoba, was there any tracking of ore from Lalor over to the Flin Flon concentrator during Q3? Is that kind of ramped up now?

[Alan Hair:]

No, there was -- I mean, it all depends on the Lalor mine outputs. Obviously, as we’ve said, the ramp ups have been delayed slightly and we don’t envisage trucking ore again going forward.

[Stefan Ioannou:]

Okay. And I guess just looking forward now, obviously 777 had a relatively decent winding down in the grand scheme of things, what is sort of the outlook for Flin Flon concentrator as we get out to sort of that 2021 timeframe.

[Alan Hair:]

Well, in terms of outlook, I mean, our expectation is that when 777 closes, which should be by the end of 2021, our current plan will be to put the Flin Flon processing assets, the concentrator and tailings facility on care and maintenance to maintain the optionality either for additional ore discovery on our part or the part of others. I mean, it's a very valuable asset and the Manitoba government is obviously happy that we do that while we continue to operate Wim Manitoba, a good example is the new Botania mill, I mean, we acquired that back in 2015, it has been multiples since 2005, so both of assets, you don't want to lose.

[Stefan Ioannou:]

Got it. And I'm not sure if you can comment, but obviously interesting to see the Ann Mason acquisition makes a sense from a long term point of view and some optionality. I'm not sure if you can comment, but obviously Manitoba’s copper did have an interest in Mason, with regard to sort of rumors regarding potential acquisitions in Chile, could it have been that there was some sort of confusion with regards to whether that Manitoba’s copper involvement related to assets in Chile versus something in Nevada?

[Alan Hair:]

All I can really say Stefan is that we have maintained the position that we don't comment on speculation and so I just -- I'm not going to provide any comment.

[Operator:]

And our next question comes from Mark Llanes.

[Mark Llanes:]

Just to go back on Constancia, recoveries increased to 85% from 79% in Q2. I know, Alan, you mentioned your mind to it, are you re-implementing improvements such as the [indiscernible] are you still trying to pursue those and how much more of an uptick in recovery can we expect if there is any in the next couple of quarters.

[Alan Hair:]

Well, some of the steps we’re taking might see some results in the next couple of quarters, like the installation for example. Some of those other things are longer term, but I mean all I can point to is we should come in around the predicted recovery that was in the technical report for this year. So, I mean, there is quarter to quarter variation and we -- that’s just the reality of this business. So you’re going to see that both in Constancia and Manitoba, potentially improve upon them with some of the additional work that we're doing. But it's too early to make any predictions at this stage. And I would emphasize there will be quarter to quarter variation, so wouldn’t necessarily the recoveries to be designed this quarter as they were last quarter.

[Mark Llanes:]

Okay. And just a follow up question on the Mason acquisition, your team guided to 50 million in exploration guidance at the beginning of the year, does the acquisition included in that 50 million or is that separate?

[Alan Hair:]

Separate, but we haven’t necessarily allocated all our exploration dollars this year, some of it will be covered off by that exploration budget.

[Operator:]

And we’ll hear next from [indiscernible]

[Unidentified Analyst:]

[indiscernible] from Stifel. On slide 19, I was hoping you could discuss the 1.1 billion of capital that is required for Rosemont, how you guys are thinking about funding that and whether there's a maximum amount of debt that you guys are comfortable with having on the balance sheet.

[Alan Hair:]

I think we've been fairly clear that when it comes to fund the exact structure of -- the exact capital structure when we come to fund Rosemont will depend on the timing and the market conditions at the time. Obviously, we've seen even in these months, quite a significant swing, copper prices. So it was highest 330 back in June, which is obviously a far better -- would have been a good environment to hedge. They’ve obviously pulled back a bit again, but depending on the timing in Rosemont, and a high copper price environment we've spoken with the potential of hedging some of our current production to lock in operating cash flows, we take a look on what the debt market was at the time, what other capital requirements within the business were. So I just think that we're happy that we've got lots of tools in our tool box to finance Rosemont depending on circumstances. So that's all I can really say at this point.

[Unidentified Analyst:]

And is there a maximum debt balance that you are comfortable with.

[Alan Hair:]

We do have, when we do our financial planning, we do stress test of potential low metal price environment and we get certain parameters with which we want to remain within. As I said in the script, I mean, we have been disciplined and I think we've acquired even more discipline since 2016, but even in 2016, as a point we didn't issue the stressed equity, we didn't have to take on additional debt, we didn't have to hedge, we didn’t have to stream and we didn't have to sell assets and we were one of the few companies in this space that didn't have to take any of those actions and that would be our plan going forward is to keep the balance sheet protected enough that we don't have to make any of those highly destructive – take any of those value destructive actions.

[Unidentified Analyst:]

Okay. And then depending on the timeline of Rosemont and Mason, you envision a scenario where those two major projects could be developed concurrently or do you envision doing them consecutively.

[Alan Hair:]

No. I mean, we look at Ann Mason as an advanced exploration project at this stage. I mean, we want to get boots in the ground there, do additional exploration, potentially see if we can bring some high grade deposits to bear, which can prove the economics. Otherwise, it's going to have to see a longer term, higher longer term copper price to send it into production. The advantages of acquiring at this stage is that we haven’t inherited any real baggage. It gives us a chance to define the deposit correctly from a geometallurgical perspective allows us to design the throughput rate that we would consider optimal and doesn't commit us to, we can go down the promising route appropriately and not be committed to anything suboptimal, which you sometimes get when you take over a project that's further advanced. So I’d say Ann Mason is like -- in our mind, it’s something that happens after Rosemont is up and running.

[Operator:]

[Operator Instructions] We'll hear next from Brian [indiscernible]

[Unidentified Analyst:]

I guess most of my questions have been asked and I apologize if I missed this. Just operationally, it looks like on a copper basis, you’re trending kind of above even the high end of your current guidance, is there anything notable in 4Q that we should think about in terms of maybe getting just to the high end of the guidance relative to your performance for the first nine months?

[Alan Hair:]

I think we’ve already mentioned that we expect the head grade maybe to, we certainly don't expect the same level as we saw in Q3 and as with Q2, these is a maintenance shutdown taking place this month. It might not be quite so large as Q2 shut down, but we will be done for a number of days.

[Unidentified Analyst:]

Got it. Okay. That's helpful. And then maybe just following up on the previous question around the balance sheet. I guess in the absence of a permitting decision, is the plan to still just continue to build the cash balance and at some point, when you do make that financing decision, maybe you just have a bigger amount of cash that you can sort of deploy proactively towards that future 1.9 billion?

[Alan Hair:]

That's correct and ours share is 1.1 billion currently, but yes, we believe that Rosemont’s close enough in the horizon, that's the most prudent use of the cash in hand.

[Operator:]

And with no other questions in the queue, I’d now like to turn the conference back to Carla Nawrocki for any additional or closing remarks.

[Carla Nawrocki:]

Thank you, operator and thank you everyone for participating. Please feel free to reach out to our Investor Relations team if you have any further questions.

[Operator:]

And so that does conclude our call. We would like to thank everyone for your participation. You may now disconnect.