Hudbay Minerals Inc. (HBM) Q3 2022 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hudbay Minerals Inc. Third Quarter 2022 Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, November 03, 2022, at 8:30 A.M. Eastern Time. I would now turn the conference over to Candace Brule, Vice President, Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to Hudbay's 2022 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 available, and we encourage you to refer to it during this call. Our presenter is Peter Kukielski, Hudbay's President and Chief Executive Officer; Accompanying Peter for the call will be Eugene Lee, our Senior Vice President and Chief Financial Officer; and André Lauzon, 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 U.S. dollars unless otherwise noted. And now I'll pass the call over to Peter Kukielski. Peter?

Thank you, Candace. Good morning, everyone, and thank you for joining us. Before we jump into quarterly results, I'd like to congratulate Eugene Lee, who was recently appointed Senior Vice President and Chief Financial Officer. Eugene has a 10-year history with Hudbay progressing through a number of increasingly senior roles and executive responsibilities and is highly regarded within the industry. He has over 20-years of global mining investment banking, finance and corporate development experience, and his transition into the CFO role has been seamless. With Eugene and the CFO role and André in the COO role, I believe we have the right leadership team dynamics in place to continue to execute our exciting growth strategy while remaining committed to deleveraging and disciplined capital allocation. Now in conjunction with our announcement of Eugene's assumption of the CFO role, I'm going to depart from traditional and have both Eugene and André Lauzon, our COO, talk to some of the key themes. With our commitment to deleveraging and disciplined capital allocation in mind, 2022 has presented us with a period of higher input prices and decline in copper prices, resulting in industry margins being significantly reduced. While Hudbay benefits from our consolidated cash costs being positioned in the first quartile of the global cash cost curve, our focus continues to be on cash flow, and we will touch on the steps we've taken to navigate this challenging environment. But first, let me speak to our quarterly results beginning on Slide 3. I'd characterize our third quarter results as a period of strong performance in our Peru operations and a period of transition in our Manitoba operations after the planned closure of the 777 mine in June 2022. Our consolidated copper production in the third quarter was 24.5k tonnes, a 5% decrease compared to the second quarter due to the closure of 777, but partially offset by higher copper grades in Peru. Consolidated gold production was 53.2k ounces, a 9% decrease due to the closure of 777 and slightly lower gold grades in Peru, but partially offset by significantly higher grades at Lalor and higher recoveries in Snow Lake in Peru. Consolidated zinc production was 9.8k tonnes lower than the prior quarter due to 777's closure and one-off production interruptions in Snow Lake during the quarter. We anticipate stronger production in the fourth quarter and have reaffirmed our 2022 production guidance for all metals. Consolidated cash costs decreased to $0.58 per pound of copper from $0.65 in the second quarter. This significant improvement was primarily a result of lower on-site costs in Manitoba, partially offset by higher on-site costs in Peru, higher treatment and refining charges, higher freight costs and lower consolidated copper production with the closure of 777. Consolidated sustaining cash costs were $1.91 per pound in the third quarter compared to $1.87 in the prior quarter. This slight increase was due to higher sustaining capital expenditures, partially offset by lower cash costs and lower royalties. Both measures are tracking well with respect to the 2022 guidance ranges, and we are reaffirming our full year consolidated copper cash cost guidance of $0.60 to $1.05 per pound and sustaining copper cash cost guidance of $1.60 to $2.25 per pound. Consolidated all-in sustaining cash costs increased to $2.16 in the third quarter from $1.93 in the second quarter due to higher corporate selling and administrative expenses and accretion and amortization of decommissioning and community agreements. Operating cash flow before change in noncash working capital was $82 million during the third quarter, reflecting a decrease from the second quarter. This decrease was primarily the result of lower zinc sales volumes, lower realized prices for all metals and inflationary pressures on mine operating costs. Third quarter adjusted net loss per share was $0.05 after adjusting for a noncash gain related to the revaluation of the environmental provision and a revaluation gain on the gold prepayment liability, among other items. Third quarter adjusted EBITDA was $99 million, a decrease compared to the prior quarter's $141 million. This was as a result of the same factors affecting cash flow as discussed. We exited the quarter with $286 million in cash, an increase of $28 million during the quarter as well as undrawn availability of nearly $370 million under our revolving credit facilities. Turning to Slide 4. Our Peru operations benefited from higher copper grades and higher molybdenum recoveries, partially offset by lower throughput due to a planned semiannual mill maintenance program during the third quarter. We produced approximately 22,000 tonnes of copper, 13,000 ounces of gold, 564,000 ounces of silver and 437 tonnes of molybdenum. Production of copper and molybdenum was higher than the second quarter, while production of gold and silver was lower primarily due to slightly lower precious metal grades. We have seen successive quarterly increases in production this year in Peru. And as previously disclosed, we expect that trend to continue into the fourth quarter with the benefit of significantly higher grades from Pampacancha. As such, full year production of all metals remains on track to achieve guidance ranges for 2022. Total ore mined increased quarter-over-quarter due to higher amounts of ore mine from Pampacancha. The Constancia mill performed well during the third quarter with all mill nearly unchanged from the second quarter despite the planned maintenance shutdown. Milled copper grades increased quarter-over-quarter due to better-than-planned grades from Constancia. Third quarter combined unit operating costs in Peru were 9% higher than the second quarter, primarily due to continued inflationary pressures on fuel, consumables and energy costs. Hudbay expects to complete a four-day mill shutdown at Constancia in November 2022 to advance maintenance activities that were originally planned for the first quarter of 2023. As a result of ongoing inflationary cost pressures and the additional mill maintenance in the fourth quarter, full year unit operating costs in Peru are expected to be near the top end of the 2022 guidance range. Peru's cash cost in the third quarter declined by 8% to $1.68 per pound of copper. This improvement over the second quarter was primarily due to higher by-product credits and higher copper production. Copper cash costs are expected to continue to decline in the fourth quarter with higher anticipated copper production and contributions from precious metal byproduct credits. However, full year cash costs in Peru are expected to exceed the upper end of the 2022 guidance range by approximately 5%, primarily due to the inflationary cost environment. Peru's sustaining cash cost declined by 6% compared to the second quarter, mainly due to the same factors affecting cash costs, offset by slightly higher sustaining capital expenditures and royalties. Moving to Slide 5. We will discuss our Manitoba operations. During the third quarter, the Manitoba operations produced over 40,000 ounces of gold, almost 10,000 tons of zinc, approximately 2,000 tonnes of copper and 153,000 ounces of silver. Production of all metals was lower than the second quarter, primarily due to the 777 closure. We saw successive quarterly gold production increases out of Snow Lake this year, and that trend continued into the third quarter with an 8% quarter-over-quarter improvement. This was due to higher Lalor gold grades and increased gold recoveries at both Stall and New Britannia. Full year production of all metals in Manitoba is on track to achieve guidance ranges for 2022. After 18 years of steady production in the 777 and Flin Flon, the final reserves were depleted in June and the mine was decommissioned in early August. The Flin Flon mill was safely placed on long-term care and maintenance during the third quarter. Closure activities in Flin Flon including the zinc plant was substantially completed in the quarter with most of our employees and equipment of value transition to the Snow Lake operations to support Lalor's ramp-up to 5,300 tonnes per day in early 2023. This was a key focus area for the Snow Lake operations during the quarter as the integration of the Flin Flon employees and equipment will allow us to ultimately transition away from the use of contractors. Lalor's ore production was impacted by an underground Scooptram fire as well as a two-day Manitoba hydro power outage during the quarter. Once production activities resumed following the power outage, priority was placed on mining the higher-value copper gold ore to maintain throughput at New Britannia. In addition, Lalor completed a scheduled maintenance program at the end of the third quarter and into the beginning of the fourth quarter to replace surface ore shoots and complete other pre-winter maintenance activities. Lalor's ore production is expected to return to 4,650 tonnes per day in the fourth quarter and is on track to ramp up to 5,300 tonnes per day in early 2023. All mined at Lalor decreased by 16% in the third quarter due to the noted transition and production interruptions impacting operations. Mined gold, zinc and copper grades were 23%, 7% and 1% higher, respectively, compared to the second quarter. The ore processed at the Snow Lake Mills was lower quarter-over-quarter to match the ore feed from Lalor. Ore recoveries were consistent with the metallurgical model for the head grades delivered. The New Britannia mill achieved consistent production in the third quarter, averaging approximately 1,440 tonnes per day. Metal recoveries have now stabilized near targeted levels. Additional improvement initiatives will continue to be advanced in the upcoming quarters with a focus on reducing reagents and grinding media consumption that has contributed to higher operating costs than planned. These initiatives require minimal capital expenditures and will further improve overall metal recoveries and copper concentrate grades. Manitoba combined unit operating costs significantly increased compared to the second quarter as we transition to the stand-alone cost structure of Lalor. Unit operating costs were also impacted by higher contractor costs during the transition period, higher costs at New Britannia and continued inflationary cost pressures and lower tonnage with production interruptions. Costs are expected to decline in the fourth quarter, but due to continued inflationary pressures, we expect the full year combined unit costs in Manitoba to exceed the upper end of the guidance range by approximately 5%. Gold cash cost in the second quarter were $216 per ounce higher than the second quarter, primarily due to lower byproduct credits as gold revenue continues to increase and become the largest contributor to total Manitoba revenue. Cash costs were also impacted by higher treatment and refining charges, partially offset by lower on-site and zinc refining cost due to the closure of 777 and the zinc plant. Year-to-date gold cash cost of $136 per ounce continues to track well below the 2022 guidance range. And as such, we reiterate the guidance range for the full year. Our current focus at Copper World is to derisk the project through the completion of pre-feasibility activities, state-level permitting and the bulk sampling program in 2023 as discussed on Slide 6. The pre-feasibility study is expected to include conversion of the remaining inferred mineral resources to measured and indicated. It will also optimize the layout and sequencing of the processing facilities, including concentrate leach technology, trade-offs and timing, in addition to evaluating other upside opportunities. The process plant pre-feasibility level engineering is 85% complete and geotechnical and hydrogeological site investigation activities have been completed. Pre-feasibility engineering, design and metallurgical test activities are on track to be completed before the end of 2022 with the results expected to be published in the study in the first half of 2023. Copper World requires state and local permits for Phase 1. We submitted an Aquifer Protection Permit application to the Arizona Department of Environmental Quality, known as ADEQ in September. And in October, we submitted the application for an Air Quality Permit to the ADEQ. We expect to receive these two remaining state permits by mid-2023. The other key state permit, the Mined Land Reclamation Plan was received in July 2022. Upon receipt of the state permits for Phase 1, Hudbay expects to conduct a bulk sampling program to continue to derisk the project by testing great continuity, variable cutoff effectiveness and metallurgical strategies in high-grade near surface areas of the Peach-Elgin and West pits. We have revisited the timing of a definitive feasibility study for Copper World in light of the current price environment, but it is important to note that nothing has changed with respect to our view that this project is a robust, high-quality copper project that will be developed in the medium term. And our efforts to derisk the project over the next 12 to 18 months will only add value to Copper World and prepare it for the definitive feasibility stage. Turning to Slide 8. We recently executed the surface rights exploration agreement with the community over Chicago that allows for exploration of the Maria Reyna and Caballito properties. Hudbay owns the mineral rights to these properties that are located within trucking distance of the Constancia processing facility, and we completed geophysical surveys in the area that indicate large-scale potential at Maria Reyna and Caballito. Shortly after the community exploration agreement was completed, we commenced baseline environmental and archeological activities to advance the permitting process to allow for drilling the properties in the future. Our geological team commenced surface investigation activities and field evidence confirms that both Caballito and Maria Reyna host sulfide and oxide rich copper mineralization in skarns, hydrothermal breccias and large porphyry intrusive bodies. Similar to Pampacancha, Caballito was located about 5 kilometers from Constancia and includes an old open pit mine that was operated by Mitsui until the early 1990s. United States geological survey from 1990 estimated a total resource of 91 million tonnes as 2.3% copper for the open pit mine. We have collected hand samples in the old Mitsui pit, which confirmed the mineralization is both copper oxides and sulfides rich with extensive occurrence of chalcopyrite and bornite. Maria Reyna is approximately 10 kilometers from Constancia and host three types of mineralization, skarn, hydrothermal breccia and porphyry with magnetite and garnet skarns and hydrothermal breccias having the potential to host high-grade zones. Artisanal mining activity is present in these high-grade areas and the local operators reported producing an average grade between 2% and 6% copper in their small-scale selective mining activities. And now André will speak to our Llaguen mineral resource update and recent drilling at our Flin Flon Tailings. André? André Lauzon: Thanks, Peter. Yesterday, we provided a detailed exploration update with our quarterly results, which included the announcement of an initial mineral resource for our Llaguen property seen on Slide 9. Llaguen is a copper-molybdenum porphyry deposit located in the La Libertad region in Northwestern Peru. The project is 100% owned by Hudbay and is favorably located near the city of Trujillo, close proximity to existing infrastructure, water and power supply. A bit of background, we optioned the property from Vale in 2017 and have since leveraged our Peru community relations expertise to complete an exploration agreement with the local community. We conducted geological mapping, geochemical sampling and completed a 28-hole confirmation drill program in 2021 and 2022. The initial resource estimate was developed based on this drill program, combined with a 23 hole historical drill program completed by Vale from 2006 to 2008. The mineralization in most cases starts from surface with a low strip ratio of 0.9, and the initial mineral resource estimate is at a higher level of geological confidence than we expected at this stage due to the continuous nature of the mineralization. The resource estimate includes 271 million tonnes of indicated at 0.42 copper equivalent and 83 million tonnes of inferred at 0.3% copper equivalent. The global resource contains a higher grade portion at the center of the deposit, which starts from service. The high-grade resource includes 113 million tonnes of an indicated 0.6% copper equivalent. We have initiated preliminary technical studies at Llaguen, including metallurgical test work as well as geotechnical and hydrological studies, which are expected to be incorporated into a preliminary economic assessment at a later date. The mineralization at Llaguen remains open to the northeast, northwest and at depth as well as several untested geophysical targets exist in the region, which could add to the mineral resource estimate in the future. The last slide in our exploration update is on Slide 10. Our 2022 exploration efforts in Manitoba has been focused on completing ongoing infilling drilling at Lalor in 1901, as well as confirmatory drilling Flin Flon Tailings. This facility holds in excess of 100 million tonnes of tailings that have been deposited over a span of 90 years. The results from recent drilling indicate higher zinc, copper and silver grades than reported from our historical mill records, and we also confirmed the historical gold grade. Given these results, we plan to complete metallurgical test work on the Flin Flon Tailings to assess metallurgical recoveries. Our Anderson Tails facility in Snow Lake also contains significant amounts of gold deposited over many years. Given our enhanced gold processing capacity in Snow Lake, we intend to evaluate a similar opportunity to reprocess the Anderson Tailings. And now I'll pass it over to Eugene Lee.

Thanks, André. Moving to Slide 11. The short-term pullback and copper prices has only enhanced our long-term conviction for copper. Head grade is declining, and we haven't seen any new copper projects being sanctioned. It is clear that global mine supply will be unable to meet demand from global decarbonization initiatives. For these reasons, we believe that the long-term supply and demand fundamentals for copper remain strong. However, in the short term, we have all been faced with higher input prices, coupled with the recent decline in copper prices, significantly squeezing margins. While we do benefit from having our mines positioned in the first quartile of the cost curve, we have focused our efforts on maximizing operating efficiencies and implementing discretionary cost reductions in this challenging environment. In light of this, we have taken several steps to reduce discretionary spending by $30 million for the remainder of 2022 and are targeting more than $50 million in discretionary spending cuts as part of our 2023 budgeting process as we focus on generating free cash flow. In Arizona, we are reducing our 2022 exploration, evaluation and growth spending by $10 million. As Peter mentioned, we are also delaying the expected timing for a Copper World definitive feasibility study to 2024, which will reduce Arizona growth expenditures in 2023. We will prioritize the completion of that pre-feasibility study and state level permits next year, which will allow us to begin our joint venture efforts. The planned bulk sample program will derisk the project and kick off our feasibility work without further spending on drilling and detailed engineering in 2023. In Manitoba, we are deferring plans for early development of the 1901 deposit, resulting in a savings of $5 million of gross spending in 2022 and additional amounts that were previously planned to be accelerated into 2023. These deferrals do not impact our ability to achieve the 2026 start date as laid out in our current mine plan, which contemplates the first spend at 1901 in 2024. In Peru, we are evaluating low capital alternatives to installing a public crusher saving $22 million of growth capital next year. Furthermore, we are deferring $15 million of 2022 gross spending in Peru and Manitoba relating to the mill recovery improvement programs and other capital projects. These high-return recovery projects remain on track for completion in 2023 with their capital spending profile to smooth over the next six to 12 months. We are also rationalizing our noncore asset portfolio with the divestiture of the 100% interest in our Lordsburg property in New Mexico, which was acquired through the Mason acquisition in 2018. And yesterday, we completed the sale of our equity interest in Fireweed, which received in 2018 in exchange for the sale of our Tom and Jason properties in the Yukon. We have reinvigorated our focus on deleveraging and disciplined capital allocation to unlock value in our pipeline, as shown on Slide 12. After completing our recent brownfield investment program in the first quarter, we are now entering a period of significant free cash flow over the next few years. To that end, we've improved our net debt position by $71 million to $897 million at the end of the third quarter. We also repaid 38% of the gold prepay liability during 2022 year-to-date, and the remaining $80 million will be repaid by the end of next year. As part of our disciplined capital allocation approach, we have introduced a three prerequisite plan, which I'm calling the 3-P plan for greenlighting copper world. This 3-P plan includes specific targets and milestones that will need to be achieved prior to making an investment decision in this project. The first prerequisite is permits. We need to receive all state-level permits acquired for Phase 1. The second is a plan. This includes the completion of the definitive feasibility study with an internal rate of return greater than 15%. And third, most importantly, is a prudent financial strategy. This multifaceted strategy contemplates a committed minority joint venture partner, a renegotiated pressure stream agreements, a net debt-to-EBITDA ratio of less than 1.2x, a minimum cash balance of $600 million and limited nonrecourse project level debt of up to $500 million. This 3-P plan will ensure Hudbay will be in the best position to move the Copper World project forward with the lowest cost of capital and highest risk-adjusted return on investment. Based on current estimated time lines, we think the earliest we will be in a position to prudently sanction Copper World would be late 2024. Copper World will ultimately be evaluated against other competing investment opportunities as part of our robust capital allocation process to ensure we're delivering the highest returns for our shareholders. Now back to Peter.

Thank you, Gene. Concluding on Slide 13 and reiterating what Eugene said earlier on our continued view of strong long-term fundamentals for copper, we believe we are well positioned to reap the rewards from the strong copper outlook with our high-quality copper growth pipeline. We have the highest near-term free cash flow growth and the highest leverage to copper among our mid-tier base metal tiers, and we have successfully increased our copper equivalent resources per share by more than 2.5x over the past 10 years. For these reasons, we believe Hudbay is uniquely positioned to offer attractive copper production growth and long-term optionality for shareholders. And with that, we're happy to take your questions.

Thank you. [Operator Instructions] Our first question comes from Jackie Przybylowski of BMO Capital Markets. Please go ahead.

Thanks very much for taking my call. And congrats on the quarter. And I guess, congrats to the new appointees. I know it's been a while now, but congratulations to Eugene and André. I guess I wanted to ask, maybe it's for you, Gene or maybe for Peter, a question about the statement in the MD&A about reducing discretionary spending and shoring up the balance sheet. I understand the need to do that and that definitely seems prudent to do that. But how do you do that at the same time as moving forward, your exploration projects, whether it's Copper World exploration or Llaguen or elsewhere. Where do you see the priorities for your spending?

Thanks, Jackie, and thanks for those kind words, too. I think it's all -- is a matter, as you say, of reprioritization. So no matter what we do, we do want to still continue to move forward our strategic objectives of growth in copper. But let me ask you, Gene to talk a little bit more directly to the specifics of your question.

Hi Jackie. The focus on deleveraging and generating free cash flow benefits itself in many ways. And the first is we want to continue to invest in those opportunities. And like the brownfield ones that we completed that generate, we'll call it near-term cash flow. So to that end, we are completing the stall recovery program over the course of the next six to 12 months. But what we've done with that is we smooth some of the spending to allow us to fund it in a way that reduces strain on the balance sheet based on the current copper environment. Similarly, our focus on Copper World is to spend on the PFS and to get the project ready for bulk sampling. We think that, that's the highest return. Doing a bunch of feasibility level drilling and completing the definitive feasibility study in the next six months doesn't really generate a lot of return for us. So again, it's just reprioritizing where the capital goes for the maximum benefit without losing schedule. As I said before, for Copper World, we see the earliest sanctioning of that being late 2024. So there's really no need to do the feasibility study in '23, if we're prudently allocating capital and can put that money to Stall or any of the other projects within our pipeline that generate near-term cash flow. André Lauzon: I would also add, in addition to that, Jackie, that we -- as soon as we have access to start drilling at the satellites at Maria Reyna and Caballito, we're going to drill regardless of whether we've appropriated the money in the next six or 12 months or whatever. So we are pushing as hard as we can to get drilling permits in Peru so that we can start that work because I guess for those on the line who aren't aware who don't know these satellites, these are potentially the future of the company. They are incredibly exciting, and we will do whatever needs to be done to expose their value.

That's good. That's an excellent point to add. And that drilling is more important than drilling out the feasibility drilling for Copper World. So again, we're preparing the company to make those decisions in the best possible way.

That's really helpful. And maybe a follow-up question or a sort of semi-related question for André on the tailings reprocessing work that's happening in Manitoba. I'm just wondering if the priorities changed between doing that tailings reprocess and work at 777 versus around the Snow Lake area. It sounds like -- I know you mentioned that there's excess mill capacity at Snow Lake now. Does that sort of move Snow Lake up in the priority list given you've closed 777, you probably don't have as big of a workforce there anymore and your [indiscernible] kind of shifting or is 777 area -- Flin Flon area is still the priority for that project? André Lauzon: Thanks for the question, Jackie. It's an interesting one. So right now, we're taking a very measured approach with the Flin Flon Tails. So we've completed the initial drilling and the logical next step is to progress and develop a flow sheet from metallurgical testing. And so -- and what you just highlighted is we have many, many opportunities in Manitoba, not just the Flin Flon Tails. We also have Anderson Tails, which is quite exciting. And so we'll put them through our rigorous capital allocation process. But what I would say is what you kind of alluded to is the Anderson Snow Lake Tails, and we're already recovering gold from Lalor mine. Any further enhancements that will improve gold recovery in Manitoba, whether it's -- we're currently looking at Stall mill further gold opportunities, which could tie in with the Anderson Tails. The future of Lalor, which is still open at depth, we'll benefit from those improvements. And so -- so it's probably logical for us if you're prioritizing resources, we haven't deprioritized. But what I'd say is we just -- we're not aggressively fast tracking it. And definitely top of mind, Anderson it definitely fits with the current operations to be advancing that in parallel and where it makes sense to fast track that to line up with the mine life of Lalor.

Thanks, André. That’s all the questions I have. Thanks very much, guys.

Our next question comes from Orest Wowkodaw of Scotiabank. Please go ahead.

Hi, good morning. I wanted to get some color on the cost situation in Manitoba. We saw a pretty big jump up in cost per tonne there to $2.35 a tonne in Q3. I realize it's a transition quarter with 777 workforce moving over. But can you give us a sense of how quickly those costs per tonne may decline, assuming that inflationary pressures just stay the same?

Thanks, Orest. Look, I'll provide a couple of comments and then maybe ask Eugene and André to add a little bit more color. But we expected the unit cost to increase in the second half as a result of removing the lower cost 777 from the calculation. Also, we've been experiencing continued increases in the prices and materials and consumables such as fuel, reagents, grinding media and contractor costs that I mentioned earlier. Also, the third -- Q3 was a period of transition for Manitoba, and we were focused on training the Flin Flon workforce for their new positions in Snow Lake, and this transition process takes time and additional contractors were acquired during the period to onboard our Flin Flon employees. So we'll continue to see lower contractor costs in fourth quarter and in 2023 as contractors are released, and we have a fully trained workforce. And I guess the third element was that in the third quarter, we were impacted by one-off production interruptions, which we don't expect to occur going forward. So fourth quarter unit costs should be lower than Q3, and we should trend towards those lower costs going into the new year. André, would you add any more to that? André Lauzon: All I'd say is the transition is going well, and it's going a little bit slower. And as Peter had mentioned, what the plan was, is to have -- while we are training our people as they came over from Flin Flon, we were having a contract resource as Peter was alluding to. I think we had close to over 200 people of contract resources supporting us in the transition. And that's -- what's happened is there's been a little bit more turnover than we'd expected. People were moving from Flin Flon to Snow Lake and decided to look for other opportunities. And so that's slowed that process. But as Peter alluded, it's a onetime thing in the transition. We expect to be down to about 25 to 50 or so contractors by December is the plan. And so we definitely will see decreases. And also, the focus has been very much so on New Britannia getting the gold recoveries, which we have been really successful and we're very happy with. And now we're focusing on costs. So we've probably been putting a little bit too much [indiscernible] aggressively to make sure we get the recoveries -- and over the course of this last month, we've really dialed that back, which reduces our cost tremendously at New Brit, both in the [indiscernible] consumption as well as the [indiscernible] destruction reagents. And so we'll see benefits going forward as well. So it's definitely not a long-term thing for Manitoba. It's a combination of what Peter said is transition, part of the tail-end of the ramp-up of working through the refinements and those onetime events with, unfortunately, the power outage and the fire and we're looking to a much better cost in Q4 and beyond.

Okay. And just following up on Jackie's question. Your release talks about a $50 million in identified savings for next year. I realize it's probably budgeting season and you haven't issued any guidance yet. But can we -- how much of a year-over-year decline do you think we can anticipate in total CapEx next year from the $340 million number this year? Like would it be below 300 or not so much? André Lauzon: We're still in the midst of the budgeting Orest. And I said, we've identified 50. And obviously, we've seen some inflationary pressures. We're going to make -- announce the most capital-efficient plan as we can early in the new year. But rest assured, we're pouring over every dollar across all business lines.

Okay. Thank you.

Our next question comes from Greg Barnes of TD Securities. Please go ahead.

Yes, thank you. Eugene and Peter obviously applaud the steps taken to reduce discretionary spending. But a lot of it -- or some of it seems to be focused on projects that were going to improve recoveries and improving efficiencies at the mills. Are you taking some risks here and that you don't get those efficiencies and that you impact the mine plans and recoveries in production?

Thanks, Greg. Look, I don't think so. For example, we said that we were going to not do look at the pebble crush alternative next year. But at the same time, we -- while not doing that, we're still going to look at the potential to reject pebble to prioritize higher grade ore and tonnes in the mill. So it's not like we are taking stuff out to put ourselves at risk. We're just trying to do stuff better. Eugene or André, any further comments?

None of these cuts impact the mine plans that we have for the next two years. And that's actually a focus, and we're looking at capital spending and the spread between needs and wants and make the allocation appropriately. André? André Lauzon: Yes. So the Stall project is going as fast as it possibly can in terms of delivering the metallurgical improvements there. So there's any sort of shifting there isn't because we wanted to shift it -- it's either dealing with some supply chain challenges and the like. And then with the pulling forward of the maintenance shutdown at Peru this quarter -- in November, which I think is next week. What that does is it pulls forward the second shutdown later on next year. And it actually -- we're looking to the potential earlier commissioning of the gold recovery, I mean, the copper recovery project in Constantia because it's tied to tying in some finalized pumps at the end, and that was originally going to be later on in the year and that will be pulled forward now that we've shifted those shutdowns ahead by a couple of months. So there is -- we really just focused on the ones, like Peter said, is we found a better way. We found a better way with the pebble crusher where we think that we don't need it, and it's aligned with our variable cutoff strategy. And with the drilling and the stuff that's going on, like Eugene talked about earlier in Copper World, originally, we were drilling ahead of schedule because we thought we wouldn't be able to secure drillers because the market was so tight. Obviously, that's changed. And so now we're not as concerned about resecuring drills when we need it, and we're pacing the drills to when we actually need it in the schedule. So we're just being diligent around contract at this point.

Okay. Great. Thank you. And just a secondary question on Llaguen. It looks like an interesting little project. Does that fit within your pipeline of development projects or some of the strategy looking at to move that forward?

Greg, I would say it fits in the pipeline to the same extent as Mason does. It is a large project with potentially a very, very significant economics around it. But it is our longer-dated project. And so we're going to -- we'll move it forward prudently. We're going to spend very little on it, but I think the next step is likely a PEA to assess its potential. And you never know, there's potential for us to actually perhaps to do advance to work a little bit further in conjunction with somebody else. But I would say it fits into the same space in Peru as Mason fits into the space in the U.S.

Okay. Thanks Peter.

[Operator Instructions] Our next question comes from Lawson Winder of Bank of America Securities. Please go ahead.

Good morning, Peter, Eugene and André. It's nice to hear from you all and definitely reiterate the congratulations to you, Eugene. I wanted to ask about Copper World and just with the benefit of additional time to spend on the various studies. Do you continue to believe that the ore will be optimally processed using a sulfide leach approach first, but then one that uses no pressure and heat. And our -- how is the CapEx kind of developing relative to the PEA. Thanks very much.

Thanks, Lawson. Look, I will take a first stab and then I'll ask André to expand a little bit. And what we said, I guess what I said in my opening remarks was that we're progressing the pre-feasibility study looking at a variety of options and also looking at the timing of various options and the sort of the modular nature of those options, as well as trade-offs of the various technologies themselves. And we think that the sulfide leaching process is approximately a $400 million sort of plug-and-play module. And we'll make the decision during the course of pre-feasibility, whether that is now or whether that is later and we'll also make the decision whether in fact, we go with atmospheric leach or whether we go with a medium pressure or whatever similar to what Flin Flon is using in Arizona. So the PFS will take those things into consideration. And when we come out of that, we'll have made much better decisions, and we had been able to take better decisions and also take a look at the optionality of the various modules, whether they get plugged in now or later. Anything further you would add to that, André? André Lauzon: I think just on the cost question, part of it is -- so the initial work that we've -- and we're trading off a variety of different sulfide leach different scenarios, whether it's high temperature, medium temperature or the album. And what we're finding at this stage right now is they're all kind of a wash. So there's not -- you're not picking one versus the other because it's -- you're benefiting from CapEx. We continue to think that the atmospheric leach has the opportunity for us to really go into it slowly so that it's very modular. You could start off with a trial of something very small. That's just a small percentage of the final capacity to verify that that's where you want to go, whereas when you were looking at the larger CapEx wins that you have to design it to the right-size forever with the high-pressure leach, those ones are big commitments. But in any case, like Peter mentioned is we have that optionality. We don't have to do it right away, and it will all be laid out in the pre-feasibility. And our focus though is we still believe that leaching sulfides and producing finished copper in the U.S. is aligned to all of our stakeholders -- particularly in the U.S. with the demand for copper in the near future.

Yes, the approach you guys are taking makes a lot of sense. If I'm hearing you correctly, I guess you're kind of reserving the right to follow sort of a traditional smelter approach, at least in the initial years as you kind of develop the sulfide lease technology. Is that -- would that be a fair interpretation? André Lauzon: Well, except for developing the technology. So we don't develop technologies. So the technology is already developed and proven. But from a risk-based process, we can go at it in a step-wise manner where we feel test it, feel comfortable and where the cost isn't that large. So we can take a measured approach from traditional, send it to a smelter while trialing the -- at a smaller scale to go the one way or we can look to the high-pressure medium-temperature ones, which we're very familiar with from Flin Flon. So we're looking for that options.

That's great commentary, André. Thank you very much. And then just one final question from me. With the Las Bambas as community disruptions, obviously, it's had a pretty significant impact on operations there, but we've heard very little from Hudbay. So would it be fair to conclude that there's been little to no disruptions on Constancia operations, particularly with respect to the shared road access, at least year-to-date.

Lawson, it would be fair to conclude that. So the most recent blockades were actually -- in fact, Las Bambas don't impact us because they are uphill, so they're in the opposite direction to report from us. It's really blockades more down towards the end - how that impact us. But in the recent blockade, which was not aimed at [indiscernible], it was actually aimed at government, but it was downhill from us. There was no impact on us. The only impact was that we build up concentrate for a little bit of time and when matter is resolved and off it goes down the hill. What we have done though is we recently helped to establish a co-op trucking enterprise with the local communities, whereby the community is now truck some 30% of our concentrate to the port. And that's just very helpful in navigating things. So overall, we had no impact.

Thank you very much.

Welcome.

Our next question comes from Ralph Profiti of Eight Capital. Please go ahead.

Thanks, operator. Peter and Eugene, maybe if I can ask a question just on how I should be thinking about this $500 million of nonrecourse project level debt. Would -- is it easy to consider that this could be sort of the maximum level that banks were willing to sort of put up in your initial discussions? Or is that more sort of a voluntary threshold in terms of Hudbay's comfort level?

Hi Ralph, it's actually Hudbay's comfort level. And so what I would envision is that the project level debt be the last piece of financing and be sort of allow us to overfund the potential build of it. And we want to kind of build this project in the most prudent financial structure given what we've seen with CapEx builds recently. And so we don't want to layer on too much debt, particularly at the front. So it would be kind of the last piece of financing. We think that approximately 25% debt financing would be a very prudent structure for us. There's more than 500 available to us. We're choosing to limit it to $500 million of nonrecourse project level debt.

Yes. Understood. Okay. Thank you. And congratulations to yourself and André.

Thank you.

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

Thank you, operator, and thank you, everyone, for joining today. If you have any further questions, please feel free to reach out to the Investor Relations team. You may now disconnect your lines.