Hudbay Minerals Inc (HBM) 2019 Q2 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by.

Welcome to the Hudbay's Second Quarter 2019 Results Conference Call.

(Operator Instructions) I would like to remind everyone that this conference call is being recorded today, August 9 at 9:00 a.m.

Eastern Time.

I will now turn the conference over to Candace Brule, Director, Investor Relations.

Please go ahead.

Thank you, operator.

Good morning, and welcome to Hudbay's 2019 Second 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 presenters today are Peter Kukielski, Hudbay's Interim President and Chief Executive Officer; and Cashel Meagher, our Senior Vice President and Chief Operating Officer.

Accompanying Peter and Cashel for the Q&A portion of the call will be David Bryson, our Senior Vice President and Chief Financial Officer; and Eugene Lei, our Senior Vice President, Corporate Development and Strategy.

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, and good morning, everyone.

I'm pleased to be here today, and I'd like to begin today's call with a brief introduction of myself.

I was most recently President and CEO of Nevsun Resources from May 2017 until its acquisition in December 2018.

Prior to that, I held various senior executive roles in the base metals, precious metals and bulk materials sectors globally.

I have been the interim CEO at Hudbay for a month now.

And my focus has been on getting to know the people and developing a deeper understanding of the assets.

I must say, I've been impressed with what I've seen so far and I believe that we have a solid team in place to continue to execute on our growth strategy to create long-term value for shareholders.

The search for the permanent CEO is underway.

And in the meantime, the management team is focused on progressing the value creation opportunities we have in each of our business units.

I would also like to make a few initial remarks about last week's court decision regarding Rosemont.

We are obviously deeply disappointed and frustrated by the decision, which appears to overturn decades of settled mining law in the United States.

We are evaluating all of our options, including appealing the decision.

We are also encouraged by the support we are receiving from the rest of the mining industry following the decision.

However, it may take some time for any appeal to be heard and decided upon.

We believe that 1 to 2 years is typical in cases like this.

In the meantime, we are assessing other options to advance Rosemont.

We have suspended most work on the early works program and now expect total Rosemont project capital spending of $30 million compared to the previous guidance of $122 million.

These costs are in addition to $20 million of Rosemont nonproject costs that are still expected to be incurred in 2019.

Given how recently the decision was received as well as the ongoing legal process, there is not much else we can share with you at this time regarding either the legal process or our plans for Rosemont.

We continue to look at all of our options within the context of this decision and the current environment.

I will now move on to a review of our results for the quarter, together with some comments on the progress of our growth initiatives in Peru and Manitoba.

I will close with an overview of our strategy and the summary of our upcoming catalysts.

Building off a solid first quarter, Hudbay delivered strong operating results in the second quarter, including record mine production at Lalor, record throughput at the Stall concentrator and strong production results in Peru, notwithstanding the planned semiannual maintenance activities at the Constancia mill.

Based on these results, we are on track to achieve our full 2019 production cost and capital expenditure guidance.

We produced 30,000 tonnes of copper in the quarter, a decrease compared to the last quarter due to lower grades at 777 and Constancia, along with reduced throughput at Constancia from the planned 6-day mill maintenance shutdown.

This was offset by increased ore from 777 in Lalor and the exceptional performance from the Stall mill during the quarter.

Consolidated cash cost per pound of copper produced, net of by-product credits was $1.27, an increase over last quarter, primarily due to lower copper production.

Similarly, all-in sustaining cash costs increased to $2.26, driven mainly by the decrease in copper production and increased sustaining capital expenditures.

Earnings and earnings per share in the second quarter were affected by several factors.

The first was a write-down of the loan receivable from the previous minority joint venture partners on the Rosemont copper project.

As previously disclosed, we completed the acquisition of the minority interest in April, consolidating a 100% interest in Rosemont.

The structuring of the acquisition for tax efficiency resulted in the loan receivable being written off for accounting purposes, a noncash transaction that did not alter the underlying economic arrangements with the sellers.

This affected earnings per share by $0.10.

The second factor was noncash deferred tax adjustments, which affected earnings per share by $0.06.

And as disclosed previously, we incurred costs related to the recent proxy contest amounting to $0.01 per share.

Our balance sheet remains strong, and we ended the quarter with $490 million in cash and a net debt position of $488 million, positioning us well to fund our future growth initiatives.

With our second quarter results, we are pleased to announce the initial resource estimate for the 1901 deposit in Snow Lake, only 6 months from the initial discovery of the deposits.

Cashel will touch on the 1901 deposit in more detail shortly, but not before I stress the significance of this discovery to the Manitoba business.

Now I'd like to turn to our South America business unit where Constancia continued to perform well in accordance with our expectations.

During the second quarter of 2019, we were mining in areas with higher strip ratio and lower copper grades in line with the mine plan, which resulted in lower mined and lower grades compared to the first quarter of 2019.

Mill's copper grades were also lower than the most recent quarter as a result of the planned lower mined grades.

Mill throughput in the second quarter of 2019 was consistent compared to the same period in 2018, but lower than the first quarter of 2019 due to the regularly scheduled mill maintenance shutdown occurring in the second quarter each year.

However, throughput in the second quarter was in line with the mill's designed capacity rate.

Copper recoveries in the second quarter of 2019 were 84.7%, reflecting sustained metallurgical improvements initiated in 2018.

While recoveries vary from quarter-to-quarter depending on the complexity and grade of the ore feed, we continue to see results from ongoing recovery improvement initiatives.

These initiatives include those targeting flotation operating efficiencies and the integration of an automated, advanced process control system in the grinding and bulk flotation circuits.

We are pleased with the copper recovery performance in the mill and are on track to achieve the copper recoveries we've previously forecasted.

During the second quarter, Constancia produced 24,000 tonnes of copper, 12,000 ounces of precious metals and 334 tonnes of moly.

In addition to the regular semi-annual maintenance work, we continued the installation of new equipment in support of efforts to optimize recoveries at the Constancia mill.

Combined mill -- combined mine, mill and G&A unit operating cost per tonne reflects the higher maintenance costs and associated lower tonnage, resulting in higher unit costs compared to the first quarter, but consistent with unit costs in the same quarter last year.

Cash cost per pound of copper produced, net of by-product credits for the second quarter of 2019 was higher than the first quarter due to lower copper production, but in line with the same period in 2018.

Sustaining cash cost per pound of copper produced, net of by-product credits for the second quarter was $2.09, reflecting higher sustaining capital expenditures, in line with the mine plan.

The maintenance shutdown and the variations in copper grade are consistent with the full year plan for Constancia, and we continue to expect production and cost guidance to be met for the full year 2019.

Constancia continues to be one of the lowest cost sulfide copper mines in South America.

We remain focused on adding value at Constancia through bringing the Pampacancha satellite deposit into production, which will extend the high-grade profile.

We continue to make progress on our discussions with the local community of Chilloroya to acquire the surface rights at Pampacancha.

We have recently come to terms on amendments to prior agreements with Chilloroya and are now turning our attention to Pampacancha.

Given our strong social license in Peru, we continue to believe our measured approach to community relations will prevail.

As announced last quarter, an agreement with Chilloroya would be subject to completion of the Consulta Previa process with the Peruvian government, which typically takes approximately 3 to 6 months in Peru.

Given that Chilloroya is an established community with a majority voting process requiring 2/3 of community votes to approve agreements, we don't anticipate the Consulta Previa process to be a significant hurdle for accessing Pampacancha.

As mentioned in our press release, we have been affected by the recent protests related to the Tia Maria project, which have involved the road blockade preventing access to the port of Matarani.

We currently have intermittent access to the port, and there has been recent progress by the Peruvian government in opening the roads.

While our team in Peru has done an excellent job of mitigating the impact of this, we are continuing to monitor the situation closely and would not be surprised to have excess concentrate inventory on hand at the end of September.

Turning to the rest of the Constancia region, we are excited to test the potential of the other nearby satellite deposits we acquired last year, including the Maria Reyna, Caballito and Kusiorocco targets, which could provide higher-grade feed to the Constancia mill after the Pampacancha ore body has been mined.

Geophysical characteristics indicate these satellite properties have the potential to be even more prospective than the Constancia and Pampacancha ore bodies.

We continue to advance permitting community relations and technical activities required to access and conduct drilling activities on these properties and plan to drill one of the properties later this year.

Moving on to Manitoba.

The second quarter results reflect the first full quarter of the Lalor mine achieving 4,500 tonnes per day and the Stall mill achieving record quarterly throughput over 3,700 tonnes per day.

The 777 mine also had a strong quarter with a 4% increase in ore mined compared to the first quarter and a 35% increase over the same quarter last year.

777's mining cost per tonne have also been trending lower compared to the same quarter last year.

As a result of the strong performance from the mines, total ore mined at the Manitoba operations during the second quarter of 2019 increased by 5% compared to the first quarter.

Similarly, total ore milled increased by 16% from first quarter levels, resulting in a 12% reduction in total concentrated unit cost per tonne.

The Stall concentrator achieved a record 3,700 tonnes per day due to ongoing operational and maintenance improvements.

Ore milled at the Flin Flon concentrator increased by 27% over the first quarter as a result of higher production at 777.

Total combined Manitoba production increased across all metals compared to the first quarter of 2019.

Zinc production increased by 14% to 32,000 tonnes, precious metals production increased by 15% to 28,000 ounces and copper production slightly increased to 6,000 tonnes.

Full year production of all metals is expected to be within the annual guidance ranges.

Manitoba combined mine, mill and G&A unit operating costs in the second quarter of 2019 were 8% lower than last quarter due to the lower concentrated unit costs.

Manitoba combined unit costs are expected to be within guidance ranges for the full year 2019.

Cash cost per pound of copper produced, net of by-product credits in the second quarter of 2019 was negative $0.15.

These costs were lower compared to the first quarter, primarily as a result of higher byproduct revenue.

Sustaining cash cost per pound of copper produced, net of by-product credits in the second quarter was $2.11, which was lower than the first quarter, also as a result of higher by-product credits.

In addition to the strong operating performance in Manitoba, we announced an initial resource estimate at the 1901 deposit in Snow Lake, only 6 months after its discovery in February of this year.

In visiting recently with the team at site, I have been impressed by the level of excitement around the 1901 deposit and the significant upside potential that exists.

I will now have Cashel provide more details on the 1901 deposit.

Cashel?

Thanks, Peter.

We were able to achieve this initial resource estimate in record time due to the focused drill program, geological interpretation and resource modeling the team has conducted over the last few months.

The deposit is located between the former producing Chisel North mine and Lalor mine, less than 1,000 meters from an active underground ramp at a depth ranging from 550 to 650 meters and within 15 kilometers striking distance of the Stall Concentrator.

The property is 100% owned by Hudbay, free of any royalties or streams.

The mineralization is interpreted as 2 zinc-rich VMS lenses with locally high-grade gold and silver content and occurs along the hanging wall contact of the stratigraphic horizon hosting the Chisel North deposit.

Based on the recent drilling results, we have defined an initial resource estimate of 2.1 million tonnes grading 9.6% -- 9.67% zinc, with the potential to add meaningful gold resources.

We have recently changed the way we report mineral reserve and resource estimates in Manitoba.

And that exact methodology was followed on this initial resource estimate for the 1901 deposit.

The methodology constrains the resource with the stope optimization envelope that ensures continuity of mineralization with economic potential into minable shapes.

And therefore, most of this resource estimate is expected to convert to mineral reserves.

The deposit remains open in several directions.

And exploration targets for new discrete lenses also exist in the immediate vicinity of 1901.

We continue to test the limits of the deposit with 2 drills actively exploring in the area.

We are also advancing feasibility studies to develop the 1901 deposit with a focus on optimizing the net present value of the Manitoba business unit.

In addition to the current 1901 resource estimate, we have also identified several high-grade gold and copper-gold zones at the deposit, but drilling density is not yet at a level to establish a mineral resource estimate.

Highlights of the drill hole intersections occurring in the footwall of the zinc-rich lenses include one drill hole which assayed 29.8 grams per tonne gold and 401.8 grams per tonne silver over 7.5 meters.

And another which assayed 3.2 grams per tonne gold and 19.9 grams per tonne silver and 2.83% copper over 9 meters.

Several other high-grade copper and gold intersections of less than 3 meters occur throughout the footwall zone in altered felsic units.

As drilling progresses to an infill stage to convert the inferred zinc-rich resource estimates to an indicated category, the company also expects to establish the continuity of gold and copper-gold rich mineralization and report a mineral resource estimate for this portion of the mineralization.

The gold and copper-gold rich mineralization is likely to constitute a suitable feed for the New Britannia gold mill after its refurbishment is completed in 2022 and could further enhance the gold production profile from the Snow Lake camp.

To help put the size of the 1901 deposit into perspective, based on the initial inferred resource estimate, the deposit already ranks in the top 10 largest deposits in the Flin Flon and Snow Lake regions.

Given our past history of successful mine life extension in Manitoba and the potential to grow through new lenses and the inclusion of the high-grade gold material, the 1901 deposit is expected to become an important part of value creation in Manitoba.

In addition to the active exploration program at the 1901 deposit, we have also continued in-mine exploration activities at the Lalor mine and progressed engineering studies for our other 100% owned deposits in the Snow Lake area, including WIM, Pen and New Britannia.

Drilling and studies will continue throughout the year and are expected to be incorporated in the annual mineral reserve and resource estimate in early 2020.

With that, I'll pass the discussion back to Peter.

Thanks, Cashel.

Looking forward to the second half of the year and into 2020.

While we have already achieved several significant catalysts year-to-date, we believe we still have meaningful near-term catalysts within our pipeline.

In the Snow Lake region, we will continue to explore our large land package to provide potential additional feeds to our Stall and New Britannia mills.

Lalor has several upcoming catalysts, such as upgrading the inferred resources into reserves, additional Lalor in-mine exploration and ultimately achieving first gold production out of New Britannia by 2022.

We will continue studies on WIM, Pen and New Britannia zones to upgrade them to reserve classification while advancing feasibility work on the 1901 deposit, along with the continued acceleration at 1901 and the incorporation of the gold mineralization.

Additionally, we expect to be drilling at one of the satellite targets near Constancia later this year and continue to make progress on discussions to reach a community agreement on Pampacancha.

We continue to believe that Rosemont is one of the world's best undeveloped copper projects delivering a 15.5% after-tax unlevered IRR at a copper price of $3 per pound based on the 2017 technical report.

We are continuing to evaluate the options to move Rosemont forward and expect to provide more information on our plans later this year.

And lastly, we have plans to drill high-grade targets at Ann Mason with a focus on enhancing project economics, along with advancing exploration activities on our other prospective grassroot exploration properties in Chile, Peru and Canada.

I'd like to conclude with a recap of Hudbay's investment rationale.

We have continued to execute on our consistent long-term growth strategy and developing our world-class asset base.

We have a proven track record of successful project development through best-in-class construction and ramp-up of Constancia and Lalor.

Our flagship mines are among the lowest cost in their respective regions, confirming our operational excellence, and we continue to add value through successful exploration at our mines.

Although we are never satisfied, we are pleased with our operating results and financial performance as we continue to generate strong cash flow from unhedged copper and zinc production, positioning us well for our future capital allocation plans.

We have a robust pipeline of near-term catalysts, we have a team in place to deliver on these catalysts and we look forward to continuing to deliver on our objectives through safe and responsible practices.

That concludes my presentation portion of the call, and we are pleased to take your questions.

(Operator Instructions) Our first question comes from Orest Wowkodaw with Scotiabank.

Peter, you mentioned earlier that you're evaluating kind of other options with respect to Rosemont.

Can you elaborate what you're referring to there?

I mean what other options are there besides appealing the core process?

Orest, and thanks for the question.

Look, our initial plans are to launch the process in conjunction with the early works program.

So at this point, we are looking at all of our options and developing relationships.

It's a little bit difficult to say exactly what the options are that are available to us right now.

We think there are serious issues in the court's decision, and we believe the decision will be overturned.

We believe in the work that the agency did.

We'll know more with time.

But to comment on the options available to us now would be premature.

Okay.

And as a follow-up to that, I mean given the setback here on Rosemont, does this perhaps change any of the strategic directives of the company in terms of where growth may come from?

Like this -- is there a chance you may look for a different growth vehicle given Rosemont is now more long dated?

Orest, I think it's premature again to say that we will look at alternatives right now.

We remain very, very committed to Rosemont.

I think that if you look at Rosemont in the holistic context of the company's strategy, we are continuing to prosecute that strategy with vigor.

We always look at options that may arise as sort of part of our capital allocation process, and we'll continue to do that.

But just 1 week into the period of this decision, it's very difficult to say exactly what that might be.

Okay.

And then finally, Peter, just as a new CEO coming in, have you had a chance to evaluate the Hudbay asset base?

And I'm curious whether you see an opportunity for any strategic change of direction with the assets?

Thank you for that question.

Look, I have visited the Manitoba sites.

I have visited the Arizona sites and I'm heading to Peru next week.

So far, I'm really pleased to see the bench strength that we have across the company, including at the operations.

There's a vibrant atmosphere in the head office.

Overall, this is a super bunch of people.

And when you put good people in front of challenges, you get creative things happening.

I think that there is enormous opportunity ahead of this company.

And I think that having an interim CEO in this seat at the moment doesn't change anything.

I believe that the company's strategy is pretty straightforward.

Great people, good assets.

And I think the outlook is pretty positive.

Our next question is from Ralph Profiti with Eight Capital.

Peter or Cashel, I'd like to talk a little bit about the gold potential at 1901.

And just wondering how you're seeing the similarities with Lalor?

And is there a scenario where you potentially can be looking at opportunities for modifications of New Brit or should we be thinking about the gold potential there as sort of grade enhancements and things like mine life extension?

Ralph, Cashel here.

Yes.

I think it is -- there is an analogy for 1901 as we sort of stated in the script, it's early days, but there are intersections in the felsic footwall units.

And we see that same goal associated with lenses 10 and 20 in Lalor where we called it previously conformable gold zones, and we mine them together sometimes with the base metal zones.

And that really -- those gold zones provided the foundation for the business case, for the refurbishment of New Britannia to move the Stall gold recoveries from 55% to be able to get closer to 90% or mid-90s on gold recovery at New Britannia.

So this fits perfectly in with that strategy.

And with respect to 1901 itself, it is higher-grade zinc than what we're currently mining at Lalor and what the future reserve at Lalor is.

So we see the potential for it to maybe replace some of the feed that Lalor is currently providing sooner into the Stall complex in the base metals and then, therefore, extending the life of the Snow Lake camp.

So I think given time, over the next several months, we'll be able to put this story together for the most optimum plan to deliver the best value for our shareholders out of the Manitoba business unit.

Got it.

Got it.

Okay.

Yes.

If I can switch gears and maybe ask a question on the port issues at Matarani.

Just wondering where do you think the biggest risks are.

Things like concentrate storage come to mind for me, but is it possible that we could be looking at more risks in the supply chain, consumables area and procurement being potentially a bigger issue?

Can you touch on that, please?

Yes, Ralph.

Look, I think that obviously, it all depends on how long closure lasts.

And I'd note also too that we have had intermittent access to the port and that -- but to be clear, we certainly -- it has impacted our ability to bring some consumables in.

You're aware, I believe, that we've stopped moly production in the meanwhile because of lack of availability of sodium hydrosulfide.

But at the same time, we are ahead on moly production for the year in any case.

The team has done an excellent job with managing the situation and minimizing the impact of the disruptions.

Depends on how long they last.

And if they persist for a while, we'll provide an update a later date on the expected impact on Hudbay.

But I have to say the team has done a tremendous job of being able to stockpile material in the interim and to actually procure fuel and stuff that we need on site.

Our next question is from Matthew Fields with Bank of America Merrill Lynch.

Congratulations, Peter.

Understanding that, obviously, it's early days in the Rosemont appeal process and you're sort of going on with other options as well.

Just want to know, obviously, you've earmarked a lot of cash on the balance sheet for eventual Rosemont development.

What does the balance sheet look like if Rosemont can't go forward?

And sort of what's Plan B for that sort of cash?

Thanks, Matthew.

As you know, we have $490 million of cash in the balance sheet.

We've got net debt of $488 million.

We've got liquidity of $911 million right now.

As far as what happens if we don't have to spend money in the near term, that's not such a bad thing.

But why don't I let David speak more specifically to your question.

Yes.

I think as we said before with respect to Rosemont, it's early days.

We've got some really exciting opportunities with the refurbishment of the New Britannia mill, the 1901 zone.

We're sort of looking forward to moving forward with Pampacancha.

So we think that there's a number of organic growth opportunities inside the business already that have some capital requirements associated with it.

And so I think sort of it's way too premature to be sort of thinking about any capital structure or sort of liability management implications of any of this and certainly not on our minds at this time.

I guess the sort of natural extension is, if Rosemont can't go forward do you envision a lower level of absolute debt for your balance sheet going forward?

I think we'd have to assess that if we actually found ourselves in that scenario.

Our next question is from Jackie Przybylowski with BMO Capital Markets.

I guess my first question just following up on the Rosemont theme.

Can you give us an idea, assuming that the appeal continues through 2020, do you have any spending plans -- capital spending plans at Rosemont in 2020?

And maybe just related to that, can you maybe talk a little bit about what you expect the time line for the appeal process might look like?

Yes.

Thanks, Jackie.

Look, as we've said, the appeal process can be expected to take anything from 12 to 24 months.

We don't know how long it will take.

In the meanwhile, we have guided towards what we expect our expenditures to be in the near term.

Certainly, this year, we talked about $30 million and -- of which a fair amount is spent, but a small amount will be spent on continuing to hone in on some of the work that needs to be done, such as water management, such as further engineering associated with tailings management, that sort of thing.

So it's normal course stuff that will add value in any case.

But our capital spending, of course, will be at a much lower level.

I guess I saw in the release, you mentioned that you're demobilizing a lot of those activities that you were doing this year like the engineering.

So just wondering if there was a significant amount that was maybe going to continue after that demobilization happened?

No, the engineer is basically being demobilized.

We're just keeping a core staff on hand to do the work that needs to be done to progress the work around tailings management to water management, that sort of thing.

Got it.

Okay.

And maybe just a separate topic.

Congratulations on the appointment, by the way and look forward to working with you again.

Can you talk a little bit about what the plan is at the Board level as far as you're aware for the CEO position?

And what -- I mean maybe you could speak to, like if it's something that you're interested in doing longer term as a permanent position.

And if you have any idea of what the timing would be on when a permanent appointment will be made?

Of course, and thank you for that.

Look, the first appointment that will be made is the appointment of a Chair.

We expect that -- that search is well underway right now.

We anticipate that the Chair certainly will be appointed in advance of the end of the year.

The process for -- the search process for a CEO has been kicked off.

Internal candidates will be considered.

I am one of those candidates.

And I think that the Board will have a pretty good slate of people from whom to make a really informed decision.

So you can expect the Chair to be appointed later this year.

Following that, the CEO will be appointed.

Our next question is from Greg Barnes with TD Securities.

I think it's a question for David Bryson.

You've said in the MD&A that in Arizona you have $200 million of committed CapEx, of which $87.5 million couldn't be terminated.

Just want to understand that better.

Sure, Greg.

The -- sort of the $200 million relates to sort of cancelable -- $120-odd million of cancelable orders, which obviously we've gone and canceled in light of winding down most of the early works program.

Of the $80 million, much of that relates to some equipment purchase orders that actually had been in place prior to our acquisition of Augusta and sort of have remained in place.

But there's no real deadline for those equipment purchase orders to be carried out.

There -- they've been around for a long time.

But -- sort of they've remained in our commitment schedule just kind of given the technical legal issues there, but it's not something that we anticipate being a sort of a hit to CapEx or liquidity in the foreseeable future.

So we are going to wind down some of the noncancelable contracts, some pipe orders, some debottle -- mobilization costs on the engineering and that's incorporated into the $30 million that we guided to for project spending for the balance of the year.

And what do you think carrying costs will be then for Rosemont over the next 2 years on an annual basis?

We sort of had nonproject sort of carrying costs, if you will, at the start of this year of $20 million before we got the 404 permit.

We're going to go through our budget process.

But I think sort of the spending levels for Rosemont are going to be informed by our assessment of the options that are available to us alongside an appeal of the district court decision.

So it's really too early for us to be guessing on what the spending level at Rosemont is going to be in 2020 or beyond until we have a little bit more clarity on what the business plan is going to be.

On Pampacancha, and I understand you've cleared up some issues with the local community you wanted to deal with, with existing agreements.

But how can you move this process forward now, it's been going on an awfully long time?

I think everyone wants to see some kind of closure on this.

So Greg, what I would say is that, as you saw, we sort of laid to rest some of the issues that the community of Chilloroya wanted addressed before negotiating on Pampacancha.

So we're now moving forward into that negotiation.

We expect that those negotiations will go reasonably smoothly.

And then, of course, there's Consulta Previa process to be undertaken with the government.

That process typically takes 3 to 6 months.

And then once that process is over, then we can expect to start doing some of the predevelopment work.

So I mean, obviously, we can't promise you a timeline, but we do believe that things are going pretty well as planned at the moment, and we anticipate getting into discussions with the community on Pampacancha very shortly.

Are there any specific issues surrounding the access to Pampacancha that the community has an issue with to address?

Or is it simply money?

No.

Not on which I'm aware.

And I understand it doesn't require very many replacements or resettlements?

No.

No.

So is it basically money that we're talking about then?

Typically, always is money in these negotiations.

Our next question is from George Topping with Industrial Alliance.

Peter, any consideration that have been given for share buybacks?

George, look, the company will always take a look at capital allocation mechanisms ahead of it.

And that's something that the company does regularly in any case.

So are we considering share buybacks as a consequence of a decision on Rosemont?

Absolutely not.

It's -- which is something that we would just consider in the normal course of things as part of our capital allocation processes.

Okay.

Then just secondly with Cashel.

On the 1901 deposit, see the access is really easy.

The depth, unfortunately, is flat.

But do you have the average width of the mineralization?

Average width of the deposit?

It varies from between sort of 3 meters to 15 meters.

And in some places up in the north end, we've actually had some pretty thick intersections where they could be amenable to long-hole stoping.

So again, with the amount of drill holes we have, it's a bit premature to say what the mining method will be.

But if you took an overall average, it's 8 to 10 meters.

Our next question is from Stefan Ioannou with Cormark Securities.

Guys, just maybe going back to Ralph's question, just on the -- sort of some of the issues stemming from the whole port issue in Peru.

Just -- I remember back in the early days at Constancia, there were some -- the concentrates storage on site got pretty full.

Are you anywhere near that sort of level yet?

Or like is the shed anywhere near being full and you're storing concentrate outside again?

Or is there still some buffer there?

Yes, Stefan.

We -- yes.

Certainly, we've experienced this before.

Logistical interruptions in Peru seem to be commonplace, and we've sort of established a mitigation plan that we reinitiate whenever these things happen.

And so we are -- we have -- since that other -- the last time we've built new concentrator storage facilities on site for this event, and we still have room to accommodate more production.

Okay.

Okay, great.

And then just -- maybe just -- just not to belabor Rosemont, but just you mentioned you're going to be doing some drilling at Ann Mason.

Does the sort of Rosemont uncertainty sort of prompt maybe potentially a slower sort of schedule in terms of exploring and moving forward on Ann Mason?

Or is Ann Mason sort of still status quo going forward?

There's no relationship between the 2. And if anything, you would do the opposite.

(Operator Instructions) Our next question comes from Lawson Winder with Bank of America Merrill Lynch.

Just simple questions for me on Constancia and the Pampacancha access.

So one thing would be really helpful to understand is sort of what your understanding is of the ILO 169 consultation process with the government, just in terms of sort of the steps?

And whether or not there's any court approvals required before that's actually finalized?

Yes, the Consulta Previa process is really just a prior consultation process that is undertaken in order to ensure that proper processes have been followed.

There is no court hearing or anything like that.

There is a fair amount of precedence both in the mining and the oil and gas industries with respect to how these processes have been conducted.

They've taken anywhere from 2 months to 5 months.

So we don't anticipate any complexity around it.

Okay.

That's helpful.

And then also to what extent does Hudbay sort of get consulted in that process?

Or do you guys just sort of stand in the sidelines and let the government handle it all?

It's a process that's handled by -- between the government and the community.

Okay.

That's very helpful.

And then one other thing that -- and you kind of spoken -- your team has kind of spoken about it on past calls, but I mean the original thought process was get access to Pampacancha and then that will set a precedence for getting access to Maria Reyna, Caballito, Kusiorcco and some of these other very prospective deposits.

But I'm just curious, is there a possibility to sort of flip that logic and go for access to those others, given the delays in Pampacancha?

I mean the one -- the 2 are not necessarily interrelated.

I would say that certainly we'll be pragmatic.

But to be more specific to your question, perhaps I'll let Cashel to answer.

Yes.

So the 2 communities that are the principal communities, Chilloroya and Uchuccarco are the ones we dealt with, with Constancia when we originally got the land acquisition.

And we're moving both of them in parallel, actually.

And what we've recently done is renegotiated some nits that the communities had with the original agreements.

Those are put to bed now.

And we've made a part and parcel that for those to be actioned that we need to have progress on Pampacancha and the exploration properties to the north and the communities have agreed to that.

And so now we're meeting with those communities in parallel and independently, and they both know that we're doing it together with them.

So we're very optimistic that we're moving forward and that we will get access to Pampacancha and to the exploration properties.

Okay.

But the exploration properties then -- I mean if I'm understanding what you just said, then there is sort of a path dependency in that.

It's one or all?

No, there's actually several communities.

We have access to one.

We'll be drilling there by the end of the year.

We're going through the permitting process to -- the EIS permitting process with the Peruvian government right now.

We'll be drilling there by the end of the year.

We have about 5 or 6 targets we're pursuing.

There are about 3 other communities we're dealing with, but the most prospective community is the Uchuccarco one which is the one with Caballito and the Maria Reyna drill intersections that already exist.

Okay.

That's very helpful.

And just one final question for me on Manitoba.

With the high production, I would have thought that the unit cost would have dropped a little bit.

What was it those -- keeping those a little bit higher?

Yes.

So I think the way to look at it is to be able to achieve and to get the 4,500 tonnes a day, we did see drop in our unit rate cost in the mills because of the additional tonnage going through, but in -- specifically, in the mines in Lalor, we've had to really change the concept to maintain 4,500 tonnes a day to a fly-in, fly-out operation.

So 2/3 of the workforce would be fly-in, fly-out.

And with that, it's changed the cost structure a little bit, although we still lie within the guidance ranges.

It's maybe a little bit of variance to what was in the technical report.

Our next question is from Mark Llanes with Crédit Suisse.

Just 2 questions on Rosemont.

For the joint venture partner search, would you say that, that would be put on pause for -- until after the appeals period is done?

Mark, thanks for the question.

Look, our initial plans were to launch the process in conjunction with the early works program.

And the idea really was that we would start to build relationships.

It wasn't something that was sort of a -- that a clock was ticking on.

So we'll continue to work on those relationships, to shift and build those relationships sort of unhampered by any clock at the moment.

So we will continue with that.

Okay.

And similar to the delay payments you had with Wheaton related to the Pampacancha deposit, can you remind me again on like how that works with Rosemont, if there are any?

Sorry, could you repeat that question, please, Mark.

So similar to the delay payments you have with Wheaton Precious Metals related to the Pampacancha deposit.

Can you discuss any delay payments you might have with Rosemont, if there are any?

So David will take that question.

With respect to Rosemont, there are none.

Our next question comes from Orest Wowkodaw with Scotiabank.

Just a quick accounting question.

Notice that depreciation moved up in the quarter despite being kind of low point on volumes.

Is there -- is that a one-off or is that -- should we read anything into that moving forward?

Orest, it's probably going to be a little bit higher going forward.

It's partly a function of getting Lalor up to 4,500 tonnes per day and the sort of the depreciation on the production there.

And on Peru, it's sort of a function of the throughput, but also sort of the fairly solid sales that we had on the copper side in the second quarter.

And so if we sort of draw down a little bit of inventory, then you see our depreciation tick up.

But I'd say, on balance, that these depreciation rates are probably indicative of what would be normal going forward.

Our next question is from Dalton Baretto with Canaccord Genuity.

Most of my questions have been answered.

But maybe if I could just ask one on Rosemont.

As I think ahead to your probability of success with the appeals process, are there projects or mines you can point us to in the U.S. that have been approved in, I guess, direct opposition to the crux of the U.S. court ruling on Rosemont?

I think it would be -- sorry, morning Dalton.

I think it would be fair to say that almost every, if not every permit that's been issued and turned down by a court has actually been reversed on appeal.

I'm not aware of any that haven't.

I see -- so there is precedence of this.

Any examples come to mind?

Yes, indeed.

So I mean we had one and I think it was an air permit overturned by a judge at one level a few years ago and then that was subsequently reversed on appeal.

Okay.

And then maybe just another one, more on the strategy side of things.

Peter, are you comfortable right now making bigger, more permanent strategic decisions with the interim title?

Or do we need to wait until the Chair is in place and the permanent CEO?

You know what, Dalton, I think that's a great question.

I -- the company has an established strategy.

I think that there are substantial opportunities that lie ahead of us.

We spoke to the exploration potential in both Manitoba and Peru.

We talked about the opportunities associated with 1901 mineralization and the gold side of that.

We've got a solid good bunch of people.

And like I said a little bit earlier, when good people are challenged they get creative.

So no, we're not going to be held back by making strategic -- with respect to making strategic decisions.

We have a strong Board with some new membership in that Board too.

The Board is raring to go.

With the support of that Board, we will make strategic decisions if they need to be made.

And -- while at the same time being cognizant that there will be potentially somebody else in the seat.

But we are not going to sit idly by waiting for that to happen, not by any stretch of the imagination.

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 participating today.

Please feel free to reach out to our Investor Relations team if you have any further questions.

This concludes our call.

Please disconnect your lines at this time.