Ero Copper Corp. (ERO) Q2 2022 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Ero Copper Second Quarter 2022 Financial and Operating Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Noel Dunn, Executive Chairman of Ero Copper for opening remarks. Please go ahead.

Thank you, and good morning, everyone. The news release announcing Ero's second quarter 2022 operating and financial results is available on our website, as are our financial statements and MD&A for the three months and six months ended June 30, 2022. As usual, we will be making forward-looking statements on this call that involve risks and uncertainties considering the businesses, operations and financial performance of the Company. We will refer you to our most recent AIF available on our website, SEDAR and EDGAR, for a discussion of the risk factors of our business and their potential impacts on future performance. Unless otherwise noted, all amounts are in U.S. dollars. Joining me on the call today are David Strang, Ero's Co-Founder and Chief Executive Officer; Makko DeFilippo, President; Wayne Drier, Chief Financial Officer; and Courtney Lynn, Vice President, Corporate Development and Investor Relations. Before discussing our second quarter results and the outlook of our business, I want to remind listeners that last quarter we announced a rebranding and have renamed the Ero portfolio of operations and going forward we’ll be referring to our MCSA Mining Complex as the Caraiba operations; our NX Gold Mine will be referred to as Javentina operations and our Boa Esperança project will now be referred to as our Toucama project. Our second quarter from my perspective can be summarized by four main elements. One, while we are still in the early phases of execution on our strategic growth initiatives, our team’s adherence to our capital budget thus far is noteworthy. Our growth projects remain on track and well within contingency estimates for line items secured to date representing approximately 70% and 30% of the planned capital expenditures for the deepening and the Toucama projects respectively. We had record operational performance across our assets. We set new high water marks for production, development rates, and asset efficiencies among other key metrics during the quarter. Three, we're seeing early signs that input costs are moderating across key consumables, such as diesel, steel and explosives. And four, changes to our concentrate sales channels allocations to reflect a higher proportion of international concentrate sales introduced noise in our top line revenue and accounts receivable, which we will discuss in more detail in this call. Looking back on what in retrospect looks like an incredibly timely senior notes issuance in early February, it is worth noting that the purpose of this debt offering was to insulate our execution, insulate the execution of our growth projects with a strong balance sheet. The rapid weakening of the copper prices occurred during the second quarter is exactly the kind of challenges we had in mind when we launched the bond offering at the beginning of the year. With key growth projects progressing on track and on budget, plans for a strong second half of the year, highly competitive operating costs, and early signs at consumable costs are moderating, we are confident not only in the strength of our operating business, but also in our ability to execute on our strategy on a time horizon that looks incredibly bright for copper. I will now pass the call over to David to provide an overview of our operational performance, and then over to Wayne who will cover Ero's second quarter financial performance. As always, our team will be available for questions immediately following the call.

family on the passing of Lukas: Our second quarter results were highlighted by record quarterly copper and gold production following a challenging first quarter. At the Caraíba Operations we processed over 800,000 tons of ore during the quarter, an average grade of 1.74% copper, resulting in record production of over 12,700 tons of copper after metallurgical recoveries of 91.2%. The quarter-on-quarter increase in copper production of over 30% was driven by higher tons processed. With contributions from the first upper level project Honeypot stope within the Pilar Mine, which we started mining during the quarter, copper grades continued to trend above our full year copper grade guidance of 1.6%. Mining of this area is expected to continue through the remainder of the year and support a continuation of strong copper grades in the third quarter. As a result, we continue to guide to the high end of our full year copper production guidance of 43,000 to 46,000 tons of copper production with production still expected to be roughly equally weighted between the first and second halves. At our Xavantina Operations we achieved a similar jump in production driven by higher tons processed and higher gold grades during the quarter, which resulted in record gold production of over 11,100 ounces, representing a quarter-on-quarter increase in production of approximately 26%. We anticipate gold production in the second half of the year to be modestly higher with increased gold grades expected to more than offset lower tons processed as compared to the first half of the year. By higher production levels during the quarter, our unit operating costs were affected by changes to copper concentrate sales channels due to operating challenges at our primary domestic smelter, as well as the relative strength of the BRL to the U.S. dollar. For context, I think it's important to note that despite the need to change our concentrate sales channel allocation, our operating costs in BRL terms were still within our budgeted ranges. However, the average BRL exchange rate during the quarter was 4.92 versus our guidance range, which was set using a 5.3 exchange rate. At the Caraíba Operations our C1 cash costs for the second quarter were $1 24 per pound of copper produced and C1 cash cost at the Xavantina Operations were $643 per ounce of gold produced. If the average exchange rate for the quarter had been the 5.3 that we assumed in our guidance, our cost performance would have been at the high end of our full year guided range or at $1.15 per pound of copper and approximately $600 per ounce of gold. In addition to a less favorable BRL exchange rate than originally budgeted, our all-in sustaining costs at the Xavantina Operations of $1,169 per ounce of gold produced reflected a higher level of sustaining capital expenses spent during the second quarter. Since the end of the second quarter, the BRL has weakened and is currently in line with our 5.3 guidance range. And while we have observed local pricing of certain consumables moderate, the combined influence of unit operating costs in the first half the year, as well as expectations at copper concentrate sales allocations, will continue to be weighted towards export sales through the balance of the year, we are raising our full year cost guidance. At the Caraíba Operations our C1 cost guidance has been increased and widened from original guidance of $1.05 to $1.15 per pound of copper produce to $1.20 to $1.35 per pound of copper produced. At the Xavantina Operations our C1 cost guidance range has been revised from $500 to $600 per ounce of gold produced to $600 to $700 per ounce of gold produced. And our all-in sustaining cost guide has been increased from $925 to $1025 per ounce of gold produced to $1000 to $1,100 per ounce of gold produced. As it relates to our main growth projects, our team has done a noteworthy job in remaining on budget. One relevant and recent example of these efforts were the successful sourcing and purchase of a pre-owned and never used ball mill for our Tucumã Project, significantly reducing costs and eliminating long lead time delivery risk. To date 22% of our planned capital spend for the Tucumã Project is under contract with another 8% in the final stages of negotiation. Importantly, this 30% of capital spend is within 6% of our feasibility study estimates, well within contingencies at this stage. At our Caraíba Operations, we made significant progress on the new external shaft with 25% of planned capital now under contract and another 40% of planned capital related to the shaft sinking contract expected to be finalized during the third quarter. Again, our team has done a remarkable job mitigating the impact of inflation. The capital spend currently under contract is 10% below our estimates and the shaft sinking contract is in line with our planned expenditures. In addition to our ongoing construction activities, I want to highlight our sustainability strategy we are currently developing to mitigate the environmental impact of our construction activities, particularly at the Tucumã Project. So far, we have earmarked $1 million in capital towards these efforts and hope to share more of these sustainability efforts later this year. I am also happy to report that we published our 2021 sustainability report last week and if you have not had a chance to review the document, I would encourage you to do so, as it showcases the important and excellent work being conducted throughout our organization. On the exploration front, we have now completed the drilling campaign to confirm and define the Honeypot 2 project at the Pilar mine and our team is working to update the mineral resource estimate for the zone in order for new mineral reserves to be defined. We look forward to updating the market on this project towards the end of the year. We're continued to be excited by our exploration efforts at Vermelhos, in evaluating and defining down dip extensions, particularly in the Eastern portion of the deposit. Further, our regional exploration program for both nickel and copper is advancing well and we hope to be able to provide more color on our progress in the months ahead. With that, I will now turn the call over to Wayne to review our second quarter financial results.

Thank you, David and good morning everyone. As David noted, our second quarter results reflect both strong operating performance and external headwinds, including changes to concentrate sales channels at influence top line revenue, unit operating costs, and working capital. Revenues for the quarter were $114.9 million representing a quarter-on-quarter increase of $6 million or approximately 6%. As previously mentioned, this includes noise on our revenue line introduced by an unplanned high allocation of sales to international customers resulting in a reduction to revenues of $13 million during the period. We expect the relative proportion of export concentrate sales to remain elevated for the remainder of the year with correspondingly higher unit operating costs due to the loss of domestic tax credits and additional logistics costs associated with export sales. In addition to influences on revenue, we saw an increase of approximately $19 million in accounts receivable during the period related to these longer payment terms. This affected our operating cash flows for the quarter which were $22.4 million dollars. Absent these changes to the allocations, operating cash flow would have been over $40 million. With respect to foreign exchange derivative contracts, we reported realized losses during the first quarter of $3 million and an unrealized loss of $1.4 million due to the weakening of the BRL from approximately $4.75 per U.S. dollar at the end of the first quarter to approximately 5.24 BRL per U.S. dollar by the end of the second quarter, Prudent capital management undertaken by our teams during the second quarter, resulted in deferrals of over $20 million in capital for the year. That will not impact key projects. As Noel mentioned at the outset of this call, our balance sheet remains the strongest it has ever been and our strategy is well insulated from commodity price volatility. In summary, we have a very strong second half of the year planned. Our capital projects are progressing on track and remain in line with feasibility study estimates to date, and we are starting to see early signs of consumable cost moderation following several quarters of steady increases. With that, I'll hand the call back to Noel to share some final comments.

Thank you, Wayne and everyone who joined the call today. Before we open up the call to Q&A, I'd like to recognize and thank our colleagues in Brazil for the fantastic operating performance and significant progress made on our growth strategy during the quarter. I will now turn the call back to the operator to open the line for questions.

Thank you. [Operator Instructions] Our first question comes from Dalton Baretto of Canaccord. Please go ahead.

Thanks, good morning guys. I want to start by asking about this provisional pricing noise. Can you tell us how many pounds were provisionally priced and at what price?

So Dalton at the end of the quarter, we had 9,600 tons of metal that were provisionally priced and that provision -- that was at $3.70.

Got it, okay. And then, I think you guys said it's you're going keep seeing this over the course of the year. Are you going to hedge out the quotational period on a go forward basis?

So Dalton that's incorrect. We will not be seeing this over the remaining part of the year. If you're talking about provisional pricing in terms of some metric that throws us into a, what's the word I want to use, some issues. Let's talk philosophically with regards to how this company operates in terms of its concentrate sales. Firstly, we operate in a way to attempt to sell our material on a spot basis. We're able to do that by way of two methodologies. Number one, in general, with our domestic customer, where we provide material to them on a weekly basis, we would love to be able to sell all our material domestically, but the prudence from a management's perspective dictates that we need to have multiple customers with regards to making sure that our sales channels are always open. With respect to export sales, we sell material and we are able to sell material on a tender basis and we put out tenders on an every other month type basis in terms of selling material internationally. It is somewhat unique in order to do that and we are able to do that due to the high quality of our concentrate, as you all know. We have no deleterious elements within our concentrate and our concentrate also grades between 32% and 35% copper, making it a somewhat Goldilocks concentrate in terms of the world market. When we do that, there are various mechanisms that come within the play of individual contracts that we signed on tender basis. Some of those have pricing mechanisms built into them from the buyer's perspective. Some of them require us to take into consideration hedging or short-term what we have termed price hedging over the time it takes for that material to travel. And as you will have seen over the last five years, if you go back through our financials, you will see various adjustments on a quarter-by-quarter basis in terms of the pricing and how adjustments are made, depending on what the metal price is doing, depending on what our customer does in terms of allowing us to secure pricing during the time that, that material is traveling, which is somewhat unique compared to a lot of our peers who have to sell under long-term contract and have very significant price participation and pricing look-back mechanisms, we do not. What has happened during this quarter has been unprecedented. We saw two issues emerge. Number one, our domestic customer as has been highlighted, ran into some operational issues, and you can review that by looking at their publicly related data that's available as they are a public company in Brazil. The second thing is we saw an unprecedented move in copper prices over a time period where we saw a 2.5 standard deviation movement in the metal price, which I think or believe is somewhat unprecedented and has caught everybody in the industry by surprise. So with respect to -- as we look forward to the remaining part of the year, we will be selling our material on a tender basis as we have done over the last five years to international customers. We sell to a number of different customers based upon their competitive nature and the competitiveness of their tender to us with regards to contract. And as such, we are always looking at the most competitive price bases that we can do with respect to how we can move those contracts to what we would term as close to spot sales as possible. That's how we philosophically operate. That's how we will be continuing to do that in the remaining part of the year. And frankly, we have a lot of interest with respect to people wanting more and more of our concentrate. And so we are quite comfortable with respect to how it goes forward. As I said, you can go through the previous quarters, previous years and see how that pricing adjustments have occurred. This one just happened to be a significant one in the quarter where we had two coincident things occurring at the same time. As I said, our domestic customer, not being able to take material that was allocated to them that required us to move that material internationally and at the same time we were doing that, we had this very significant movement in the metal price.

That's Great, David. Thank you for that. That's very clear. And yes, I do have the historical data, which is why this won't copy by surprise. Can I switch and ask about the CapEx and something you said? On Boa -- sorry, Tucuma, you said it's tracking 6% above budget, which is well within the contingency. Does that mean that overall, factoring in the contingency you're actually tracking under budget?

Correct. So it's an interesting one and internally, we have to -- even with respect to talking to our Board, make sure that the lines -- you are signing individual contracts, and those individual contracts are being measured against the feasibility study estimate of that particular contract. And so we have these individual contracts and so what we are doing is amalgamating those and providing guidance to you with respect to where they are as amalgamated to each other against the budget for those. Then on top of that, you -- as you well know, we have contingency, and we have contingency estimate on the overall project. And so to clarify and exactly tell you exactly what you asked, we are 6% over budget on the contracts being signed to date, but that is still within the contingency of the overall capital for the project.

That's great. And then just maybe on Pilar 3.0, post the shaft sinking contract being signed, I think you said you'd be 70% committed and on budget. So I guess same question on budget before the contingency and then are there any circumstances under which that can change?

We are on budget with respect to the contingency. As we move through that project and as we move through the Tucuma project, all contracts have two variables that we do not control, unlike any of our other peers do not control. Those will be over the time periods is labor rates and diesel pricing, and potentially some other consumable pricing. So when we look at these numbers, we have tended to take a conservative approach with regards to the contracts, in terms of the estimates, we had conservative numbers in our feasibility study, particularly on diesel and particularly on labor. But as you know, labor rates are increasing around the world. We feel that we're comfortable with those now. But a project like the deepening project, which is a 3.5 to 4-year project, I cannot tell you what those numbers will be in two years. So there is some variation with respect to labor rates, and there will be variations related to diesel prices for both projects.

Okay, great. And maybe 1 last quick 1 and then I'll leave it there. On exploration, I think you said you will provide an update in the months ahead. I thought that you would schedule or potentially tentatively schedule an update for September. Is that no longer the plan?

No. We never said September. The guidance we have been always been giving is November with regards to coming out with new technical -- ideally, a new technical report on the Curaca Valley, that would include guidance with regards to Honeypot and the influence of Honeypot on our future production schedule and guidance that we -- 5-year guidance. So we certainly are targeting a November update with respect to that. But obviously, as we continue to move forward, we have to be mindful with respect to any discoveries that we may make in the Curaca Valley that could result in us notifying the market sooner if it is material. As I said in my notes, we continue, Mike and the team from an exploration standpoint, the regional side of things are doing great work out in the field, advancing projects, and we are now in the situation of evaluating them and seeing at what point, if any, that we may talk to the market sooner than our November time frame. There's no guarantees on that, but the projects are advancing really well.

Thanks David, that’s all from me.

Our next question comes from Jackie Przybylowski of BMO Capital Markets. Please go ahead.

Thank you, very much and thanks for this call. Congrats on a good quarter. Dalton already covered most of my questions. So I guess I was just -- I'll ask, first of all, on operating costs. I know you mentioned when you changed your guidance that you're experiencing some cost inflation, which is totally expected. Can you give us a little bit of color, even just qualitatively on the influences of that? How much is fuel versus maybe lingering COVID costs versus the impact of shipping more internationally. Do you have a breakdown or any kind of color on that?

I'm going to talk -- we've got two of us will answer. Makko will give you some more granular detail, but let me talk qualitatively on the high level. We've obviously, in the first quarter, saw significant cost increases like everybody did related to inflation around the world. And particularly in our industry, like our peers we saw significant increases in oil-related products as oil prices went extremely high. We are seeing those mitigating now as we see oil prices continue to decline. We are also seeing mitigation in steel products, and that's generally been around about a nine-month lag with regards to seeing that come through. So where we are right now with regards to inflation in and of itself, we don't see significant kicks for the rest of the year right now. Obviously, that can change as the market and we move into the second half of the year. But right now, we are seeing mitigation in our operating costs related to inflation. And that has been borne out by when we look at our costs in real terms versus budget. Obviously, in the first half of the year, what we did see was an increase in costs, and we guided at the end of the first quarter towards the higher end of our costs. And as we -- I stated, if you take into consideration our cost they would be at that higher end. What has changed has been the unfortunate circumstances with our domestic smelter, and that has moved us to doing more export sales. As we look at export sales, as you guys know, versus domestic sales we do see some tax advantages that are included in our C1 costs because of the relative competitiveness of selling to the Paranapanema Smelter versus export sales. That is not linear because depending on market conditions internationally, we have actually seen international sales in the past be better than our sales to Paranapanema including the tax benefits that we would get there. For the second half of the year, we have taken a prudent view because we will be exporting the majority of our material into the international market that we will not be seeing those tax benefits. That obviously could change depending on Paranapanema situation and that obviously could also change depending on as we go through our tender process with various sales of concentrates, that is a fluid market as well. We -- what I can tell you on the international sales is we do get a discount to our TC/RCs versus the prevailing pricing of that material on the world market. But for the second half of the year, that's why we've taken a broader range in the second half of the year is because of the impact of our sales to our domestic -- limiting ourselves to our domestic smelter that we've increased the range because we are uncertain like everybody else, of where the spot TC/RCs will be moving. Certainly, we could argue that there would be a greater tightening of the market in the second half of the year as we see China continue to recover economically, but we can't be for certain. So we've just gone and taken a prudent wider range, but we do know that those tax advantages we get will not be there in the second half of the year from Paranapanema. Makko, anything to add?

Yes. No, I think that's a really good overview, Jackie. Just to dive in a bit more specifics on the components of our cost structure, we are looking at for our business at Caraiba, approximately 60% of our cost is being represented by variable cost inputs including transportation to the port for sale. Within that 60% allocation, I think the key focus for us is on 7 line items that effectively represent 50% of that, so 30% of the overall cost structure. And those are going to be the traditional kind of main inputs for our business. Obviously, diesel, emulsion, cement, balls for our ball mill, other steel products like rock bolt and screens as well as some of our primary regions, such as CMC, which is used in [indiscernible] suppression. And kind of more qualitatively, what we've seen across that basket of line items is month-on-month declines or flattening in the rate of increase, both of which I think are positive leading indicators going into the second half. I would just -- on top of what Dave said additionally note that we're not expecting in our guidance ranges that we've put out any significant moderation from these levels. So I think that represents potential positive with, as you look to our guidance for the second half of the year. Again, just looking at month-on-month declines anywhere from sort of flat to 10% to 15% decreases, which is a positive early sign relative to the plus 10% to 20% month-on-month changes we've seen for the last nine months.

That's super helpful, thank you. If I could ask another question, your Project Honeypot, it sounds like from the MD&A from the comments that test that's been mined is going really well. I was just wondering if you've seen any surprises or anything that you had not expected in the test mining that you've been so far up there.

In the test mining?

Yes.

No, there hasn't been overly surprises. The team is still learning with that. I think if anything, we saw a little bit more dilution than we would like to have seen from some of the pace that was in the adjacent stope, but that's more of as the team get comfortable in mining the stope. But on an overall basis, it appears that we're probably going to get more copper material than we anticipated out of the stope, so that bodes well. But as I said, we have got this stope and we've got three other stopes that will be mined next year. They're all similar in terms of style, of shape, in terms of helping our team get comfortable in terms of their mining and mining these historic areas as it relates to previously mine stopes adjacent, et cetera. So by the time we are ready to really get going with Honeypot 2, remember, these stopes are only Honeypot 1. This was already known in last year's update. But as we move forward with regards to Honeypot 2, which is the bigger project that we hope to be mining ideally in the next couple of years and starting there, I think the team is going to be in a great position with respect to that work at that time.

Thanks, that’s helpful and congrats again on a great quarter and on really impressive cost control, congrats.

Thanks Jackie.

Our next question comes from Bryce Adams of CIBC Capital Markets. Please go ahead.

Good morning all. I just had one question remaining, and it's related to the deepening project. I've noted the comments on the CapEx commitments in the MD&A. I was wondering if you had more color on the progress of the scope of works. If I recall properly, when we were on site in April, the shaft was drilled out to 1.5 meters. There was a cap left to surface. And maybe the next big task was the concrete color. So I was just wondering if you had a project update related to the work completed at the deepening project?

Yes. Sure, Bryce this is Makko, again. Just kind of run through some of the physical completion aspects on the deepening project. So right now, our ramp is completed to level minus 10.66%, Important to note that's only 10 meters above the bottom of the shaft level. We've got another approximately 70 meters of ramp development to go to get to that level, so that's progressing really well. You're spot on that raise board has been completed 220 meters from surface, still at about 2 meters while we finished the terrace work and civil. So during the quarter we completed all the terrace -- the bulk terrace work and as well as the concrete batch plant, the cooling plant, which is handed over to operations. We've completed the wider houses and started the winder and shaft collars, the vent pipe and cable box, all those surface installations or at least box cuts were completed, pending the completion of the cement batch plant. As I said, all the civils have taken over on those initiatives. We also completed the reverse osmosis plant on surface, and are in the finishing stages of the laydown areas. In terms of physical purchases that we've made, we've purchased and are in the process of upgrading both the sinking main winder and the stage winder. And then we’ve placed orders and fabrication is in process or expected to start imminently for the sinking rope, the rope wheeler, the headgear steel works, the sinking sheaves and the main ropes among others.

Okay, thanks Makko. That's a very, very good detail there. Maybe I missed it, but on the concrete work, with the batch plant now commissioned, that batch plant is going to be busy for the back half of this year or was a lot of that currently work on surface done already?

No, that's exactly right, Bryce. So with the batch plant now completed, while at least hot commissioning underway, we’ve handed all in the bulk terrace work completed and the box cuts completed as well. We've now started in Q3 here all the surface civil work. So we'll complete the foundation for the winder bases, the winder building, the shaft collar and then also some of the cement for the laydown areas. And then at the same time underground, we're completing the raised boring of the second leg, which goes from that minus 227 level that we're on, or plus 227 level we're on now, down to minus about 520, so that's a 750-meter raise bore. And then we'll also contemplate that underground finish the transformer base that dumps the sumps, et cetera.

I just want to jump in and Bryce, thank you for those questions. Just for everybody's -- for context, as we continue to move forward here, we started this call with regards to contracts and security of equipment, et cetera. As we continue to move forward, we will start providing updates with regards to completion rates, time to completion, et cetera, to provide the market with an update as we progress both of these large projects over the course of the next couple of years. So we will also start doing that. There's no point talking about time to completion or completion to date as of yet. Once we get going on the big aspects of the projects, we will certainly be providing that to you all on a hopefully regular basis through the quarters.

Yes. But so far, things are going really well, Bryce, and I appreciate the question, the opportunity to talk about the progress that the team is making on our main projects.

Yes, thank you, both and I appreciate that and good luck withit.

Thank you.

Our next question comes from Stefan Ioannou of Cormark Securities. Please go ahead.

Sorry I was on mute there. Just to continue on with the -- on the growth side of things that maybe shifting over to Tucuma, I know sort of last quarter, I think a lot of the work was focused on just getting the roads upgraded post the rainy season and all that. Can you just maybe provide a bit more color this quarter and maybe the next quarter, are you getting into sort of concrete works and erecting stuff yet or is it still a lot of earthmoving exercises right now?

So where we are is the first big project that's at or near completion is the upgrading of the roads into the project area. We're near complete with regards to the devegetation project, devegetating. The mining contractor is now on site, and the mining contract has now started earthworks and started that process. Remember, the big -- for us, getting the earthwork started was a big sort of metric for us because of the rainy season coming later this year. Happy to see that they're on site, they've started work at the waste dump and are looking to move now closer to start some pre-stripping activities in and around the pit. As with regards to concrete and laying concrete and things like that, that has not begun yet.

Okay great, thanks very much guys.

[Operator Instructions] Our next question comes from Bert Whitson of American Century Investments. Please go ahead.

Hi, thank you for all the detail and definitely looking forward to seeing the progress on the projects over the next couple of years. One question on the domestic international mix. You suggest that things will return to normal as far as mix in 2023. I guess, to the extent that you have any visibility, how confident are you that, that will turn out to be the case, that things will return to normal as far as mix there? And to the extent that it makes sense, would it make any sense to kind of push back any shipments from second half of '22 to '23 to, I guess, take advantage of the more favorable mix? And also, I guess, looking forward, I guess, the Tucuma, do you anticipate a similar mix as far as going to market as far as domestic international for that project once it's up and running and a potential for exposure to a similar shift in mix that may cost?

Yes, thanks, Bert. Let's talk generally and philosophically. We do not want to have overexposure to any one customer for any length of time. And I think any of our shareholders would agree that, that would be prudent with respect to making sure that we don't have AR or accounts receivable exposure to any particular company that's too high. With regards to our domestic smelter, I think we -- where we are right now is they are in a recovery mode following their unanticipated shift or stop in production, and we will continue to monitor that as they get back on their feet. At this particular stage, our view with regards to is our exposure to them right now is enough, and we will move to international. How that adjusts next year? We can't give you perfect guidance with regards to that. It is a unique situation that we have being in buy, selling to a buy-in company with regards to these tax credits with regards to that. And obviously, we work closely with them with regards to their ongoing operations and their wish to have our concentrate in their operations. Boa or the Tucuma project is very different. Tucuma is in the north of the country. We look at -- we wouldn't say that we would not sell to Paranapanema any of our concentrates from that, but that competitiveness with regards to the international market and international customers is different up there because the same level of tax credits aren't available to us with regards to Tucuma as they are with respect to the buy in operations. So at this stage, it is more than likely that our Tucuma material will be sold 100% internationally.

This concludes the question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you, operator, and thanks to everybody coming on the call today. As you know, we are always available if anybody has any additional follow-up questions they would like to ask offline. And we look forward to a third quarter that we feel is going to continue to be a strong one for the team. Our team is executing in all areas with respect to the work, all the way from operations through geology to finance, and it's a real credit to everybody and this great team that we continue to do well in interesting times. And with that, we'll pass it on and if we don't talk to you before, we'll talk to you with our third quarter financials in November. Thank you everybody.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.