Hudbay Minerals Inc (HBM) 2021 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hudbay Minerals, Inc. Second Quarter 2021 Results Conference Call. (Operator Instructions) I would like to remind everyone that this conference call is being recorded today, August 10, 2021, at 8:30 a.m. Eastern Time.

I will now turn the conference over to Candace Brûlé, Director of Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to Hudbay's 2021 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 available and we encourage you to refer to it during this call.

Our presenter today is Peter Kukielski, Hudbay's President and Chief Executive Officer. Accompanying Peter for the Q&A portion of the call will be Steve Douglas, our Senior Vice President and Chief Financial Officer; Cashel Meagher, our Senior Vice President and Chief Operating 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. Thanks for joining us.

As we're halfway through the year and starting to see a bit of light at the end of this long 18-month tunnel, we're still facing COVID-related impacts in the business. We will continue to be vigilant and adapt to the changing environment with our focus remaining on safe and efficient operations.

This quarter marks the beginning of our transition to higher production and cash flows as we complete the investment programs at our growth projects. After the successful ramp-up of the high-grade copper gold Pampacancha deposit, our Peru operations achieved record gold production in the second quarter and are on track for higher copper and gold production in 2022. The New Britannia gold mill remains ahead of the original schedule as the first gold pour is expected this month, and the copper flotation circuit remains on track for commissioning and ramp-up by the end of the year. We expect to see increased cash flows from these high-return investments beginning in the second half of 2021.

In this presentation today, I will touch on our second quarter results, discuss the progress we've made on our growth and ESG initiatives in more detail and recap the many near-term catalysts we have ahead.

Second quarter consolidated copper production was 23,500 tonnes, a 4% decrease from the first quarter of 2021. This was primarily as a result of lower copper grades at the 777 mine in Manitoba, partially offset by higher throughput at the Constancia operation in Peru.

Consolidated gold production was approximately 40,000 ounces, an increase of 12% compared to the previous quarter due to record gold production achieved in Peru from Pampacancha.

Consolidated zinc production in the quarter decreased by 23%, while silver production decreased by 2% versus the first quarter, primarily as a result of lower grades and recoveries.

Consolidated cash cost per pound of copper produced was $0.84 in the second quarter, an improvement over the first quarter, mainly due to higher by-product credits. Sustaining cash cost increased to $2.25 per pound in the second quarter, primarily due to higher sustaining capital expenditures, partially offset by higher by-product credits. We continue to expect consolidated cash costs and sustaining cash costs to be within our annual guidance ranges for 2021.

Operating cash flow before change in noncash working capital was $133 million during the second quarter, reflecting an increase of $42 million compared to the first quarter of 2021. The increase is primarily the result of higher realized metal prices and higher copper and precious metals sales volumes, partially offset by lower zinc sales volumes.

Adjusted net earnings and adjusted EBITDA in the second quarter were $0.02 per share and $143 million, respectively, after adjusting for the net mark-to-market loss on financial instruments, among other items.

As discussed last quarter, sales volumes that were affected by shipping delays in the first quarter were recognized as revenue during the second quarter, which was partially offset by higher tax expenses.

We exited the quarter with $294 million in cash and equivalents, lower than the previous quarter, mainly as the result of capital investments as we complete our growth initiatives in Manitoba and Peru, along with interest payments during the quarter. Our full year 2021 key production and operating cost guidance has been reaffirmed.

Turning to Slide 4, you'll find a summary of our operating results for our Peru business unit during the quarter. Constancia produced 19,000 tonnes of copper, 10,000 ounces of gold, 468,000 ounces of silver and 295 tonnes of molybdenum. Production was higher than the first quarter of 2021, primarily as a result of increased throughput and improved gold grades and recoveries compared to the first quarter.

Though it is a small part of our business, we note that molybdenum production is anticipated to be below annual guidance in 2021, but in line with the recent mine plan published for Constancia. We expect the production of all our key metals in Peru to be in line with 2021 annual guidance.

Ore mined during the second quarter was 16% higher than the first quarter as a result of strong operational efficiencies and a smooth ramp-up at Pampacancha. Due to its short ramp-up period, Pampacancha also achieved commercial production in April of 2021. Ore milled during the second quarter was 17% higher than the first quarter as the prior period was impacted by a scheduled mill maintenance shutdown, offset slightly by increased ore hardness in the most recent quarter. Milled grades for copper were lower than the prior quarter, in line with the mine plan and milled gold grades increased by 75% due to higher gold head grades from Pampacancha. As a result of these higher grades, we achieved record gold recoveries during the second quarter.

Unit operating costs improved over the first quarter of 2021, primarily due to a higher volume of ore milled, partially offset by higher costs associated with COVID-19 protocols. COVID-related costs in Peru of $6.3 million in the quarter were higher than budgeted and are expected to continue at these levels for the remainder of the year. Excluding these costs, unit costs were $10.40 per tonne in the second quarter, and we expect unit costs to be in line with the 2021 guidance range after adjusting for unbudgeted COVID-related costs.

Peru's cash cost was relatively unchanged in the second quarter compared to the first quarter. Higher mining costs and higher G&A costs from enhanced COVID-19 protocols were generally offset by lower milling costs and higher gold by-product credits. Sustaining cash cost increased this quarter due to the same factors affecting cash costs, offset by higher sustaining capital expenditures.

As mentioned previously, first production at Pampacancha was achieved in early April 2021. The team has executed a quick and efficient ramp-up, achieving the timelines assumed in our recently published mine plan for the Constancia operations.

Slide 5 shows recent photos of the mining activities in the Pampacancha pit where you can see the significant progress made during the second quarter. Pampacancha contributes to the improved Constancia mine plan by incorporating higher copper and gold grades from 2022 to 2025, and increasing annual copper production to above 100,000 tonnes beginning in 2022.

Moving to the next slide on Manitoba. But before I discuss the results, I want to take a moment to extend our deepest condolences to the family and those affected by the fatal injury at Lalor in June. This was the first fatality at Hudbay in over a decade and we have completed a thorough investigation of this tragic incident. We are committed to preventing similar occurrences, and we have undertaken an initiative to apply lessons learned from this loss across our business.

Overall production in Manitoba in the second quarter was lower than the first quarter, primarily as a result of COVID-19-related absences and interruptions at our Snow Lake and Flin Flon operations, a scheduled maintenance shutdown at Lalor and a temporary suspension of operations at Lalor at the end of June for the investigation of the fatal incident.

The operations produced 21,500 tonnes of zinc, 4,400 tonnes of copper, 30,000 ounces of gold and 218,000 ounces of silver. Lower grades, lower recoveries and ore stockpiling for the New Britannia mill also contributed to lower production this quarter.

While all mines during the quarter was lower than the first quarter due to the factors I mentioned earlier, gold grades were higher as we move into the gold-rich zones at Lalor, consistent with the mine plan expectations. Copper, zinc and silver grades were lower, in part due to remnant mining at 777, which results in higher quarter-over-quarter variation as 777 nears the end of its mine life and the mining sequences at Lalor.

Development and underground construction activities continue in the lower part of the Lalor mine to support the start-up and ongoing operation of New Britannia mill. At the end of the second quarter, approximately 47,000 ounces of gold -- I'm sorry, 47,000 tonnes of gold had been stockpiled as initial feed for the New Britannia mill, an increase of 21,000 tonnes from the end of the first quarter. The incremental mining actively associated with growing the gold ore stockpile has contributed to elevated combined mine, mill and G&A operating costs during the first and second quarters of 2021.

The Stall concentrator processed all available ore during the second quarter, which was 12% lower than the first quarter of 2021. Stall recoveries during the second quarter were higher for copper and lower for zinc and precious metals versus the previous quarter, but were consistent with metallurgical model. Ore processed at the Flin Flon concentrator increased 16% compared to the previous quarter as a result of processing available ore stockpiles.

Unit operating costs slightly decreased compared to the first quarter and remained within the annual guidance range. Manitoba's cash cost per pound of copper produced was negative $3.51, lower than the first quarter primarily due to higher by-product revenues and lower copper production. Sustaining cash cost per pound of copper produced was $0.36, which was lower than the first quarter, primarily due to the same factors affecting cash costs.

Full year production of all metals and unit operating costs in Manitoba are on track to achieve the guidance ranges for 2021.

Slide 7 discusses the progress of the New Britannia project in more detail. Refurbishment activities at the gold mill were completed in June and commissioning and start-up activities occurred in early July. As I mentioned, the first gold pour is expected in August, in line with the timelines assumed in our guidance, which are ahead of the original schedule to produce first gold before the end of the year.

Annual gold production from Lalor and the Snow Lake operations is expected to increase to over 180,000 ounces at average cash costs and sustaining cash costs, net of by-product credits, of $412 and $788 per ounce of gold, respectively, during the first 6 full years of New Britannia's operation.

The construction of a new copper flotation facility is on track for commissioning and ramp-up in the fourth quarter of 2021. The overall project is approximately 95% complete as of the end of July. As noted last quarter, we have seen COVID-related cost pressures on the project capital forecast at New Britannia, and there have been areas of cost escalation with industry cost inflationary pressures as the project nears completion. As a result, we expect approximately $20 million in additional growth capital to be spent this year at New Britannia. We also expect an additional $10 million to be spent on the advancement of the Stall recovery improvement project, early works for the Lalor expansion to 5,300 tonnes per day and the impact of foreign exchange movements.

This additional spending represents the next phase of growth in Snow Lake, where we are bringing forward and prioritizing the low capital, high-return brownfield growth projects that were contemplated in the recently published optimized mine plan. Therefore, Manitoba's total growth capital guidance in 2021 has increased to $105 million from $75 million.

Slide 8 provides highlights of the exciting exploration initiatives underway in each of our regions. In March of this year, we announced our Copper World discovery where our 2020 initial drill program intersected high-grade copper sulfide and oxide mineralization on our private land in Arizona at depths much shallower than Rosemont. The 2020 program confirmed the discovery of 4 deposits at Copper World, with a combined strike length of over 5 kilometers and opportunities to discover additional mineralization between the deposits. The intersections included 440 feet of 1.38% copper and 246 feet of 0.7% copper starting at surface, which serves as an example of the high grade and shallow nature of the copper mineralization.

The expanded 2021 exploration program at Copper World is well advanced with 85,000 feet of drilling completed in the first half of the year and 4 drill rigs currently turning at site. We expect to publish an update once the majority of assays have been received for the holes drilled during the first half of 2021. We are advancing the many technical studies for Copper World. We are also evaluating several targets identified through geophysical surveys on our extensive regional land package. We are on track to complete an initial inferred resource estimate before the end of the year, and the preliminary economic assessment in the first half of 2022.

In Peru, we continue to progress discussions with the community of Uchucarcco on a highly prospective Maria Reyna and Caballito properties, both of which are located within 10 kilometers of Constancia. At the end of June, we commenced drilling at the Llaguen copper porphyry target located in Northern Peru, near the city of Trujillo, and in close proximity to existing infrastructure. The initial confirmatory phase of the drill program consists of 5,000 meters with 2 drill rigs presently turning at site. Pending positive results from this initial drilling phase, the second phase aimed at defining an initial mineral resource for Llaguen is expected in the following quarters.

A scouting 8-hole drill program was completed at the Quehuincha North target near Constancia during the quarter. Copper sulfides and oxides were intercepted, but at grades too low to be economic.

Regional exploration efforts in the Snow Lake area continue following on the success from the 2021 winter drill program in the Chisel Basin, where the copper-gold rich feeder of the 1901 Deposit was discovered and high-grade zinc and gold mineralization was confirmed through infill and extension drilling. Our summer program includes a follow-up limited drill program on a new target identified immediately north of the Lalor mine from a borehole survey completed early this year. The results from our 2021 drill program in Snow Lake are expected to be incorporated into the annual mineral reserve and resource estimates to be published at the end of March 2022.

Turning to Slide 9, I'd like to highlight a number of ESG accomplishments and initiatives we've undertaken as outlined in our 2020 integrated annual and sustainability report published in May.

We truly do believe that continuously improving how we manage the social, environmental and economic risks, impacts and opportunities associated with our activities is critical for our long-term success. A large part of achieving this objective is to ensure our disclosure is clear and transparent. As such, the data in our sustainability report is mapped to the Global Reporting Initiative, the SASB metals and mining industry standard and TCFD. Additionally, we provide disclosure through the CDP Climate, Water and Forests questionnaires.

On the environmental side, I'd like to acknowledge that over 50% of our total energy consumption in 2020 was from renewable sources and all electricity at our operations is supplied by third parties via regional grids. This reflects that nearly all of the electricity produced in Manitoba is through renewable hydropower, and in Peru, over 50% is from renewable sources.

We voluntarily support several international best practice standards, including ISO 14001, ISO 45001, ISO 9001 towards sustainable mining, the voluntary principles on security and the Human Rights and International Finance Corporation performance standards. As a member of the Mining Association of Canada, we have implemented the Towards Sustainable Mining protocols at all of our operations with the goal to maintain the score of A or higher for all protocols. One requisite of maintaining this score is the commitment to ensuring that our tailings storage facilities are constructed following the Canadian Dam Safety guidelines, which represents substantial alignment to the new global tailings standard released in 2020.

And of course, top of mind in our field is always safety, especially with the recent incident at Lalor. We have a culture focused on safety at Hudbay and doing our best to everyone has the tools and protocols that are required to go home safely at the end of every shift. But we are never satisfied when it comes to safety, and we are committed to continuously improving on our performance.

At Hudbay, we recognize the tremendous opportunity that we and the mining industry have to positively contribute locally and globally to a more sustainable world. We will continue to use the 17 United Nations Sustainable Development Goals that are part of the United Nations 2030 agenda for sustainable development to inform and guide our business decisions and sustainability performance.

I'd like to take a moment to congratulate David Clarry, our Vice President of Corporate Social Responsibility, on his recent appointment as Chair of the Mining Association of Canada. This is a remarkable achievement, and one that is well deserved. As a CSR leader, David is a driving force for positive change, and we know he will help guide our industry and Hudbay to ever higher standards during a crucial time for Canada's mining sector.

I'd like to conclude with Slide 10, summarizing the many catalysts that we've come up -- that are coming up in the near term, and we do have an exciting back end to 2021.

In Manitoba, we anticipate our first gold pour during this quarter and completing the copper flotation circuit before the end of the year. We will also continue our work on executing the third phase of our Snow Lake gold strategy, including the preparation for the ramp-up to 5,300 tonnes per day at Lalor and the recovery improvement program at the Stall mill. We also continue this year's exploration program in the Chisel Basin. And as I touched on earlier, we will incorporate the results into our annual mineral reserve and resource update in March next year.

In Peru, I mentioned the drilling that is underway at Llaguen and the potential to initiate a second phase aimed at defining an initial mineral resource estimate in 2022. We are hopeful that we will achieve an exploration agreement with the community of Uchucarcco on exciting greenfield properties to the north of Constancia.

In Arizona, we expect to provide an exploration update in the coming months, followed by an initial resource estimate before the end of the year and the PEA to be released in the first half of 2022. We are also awaiting a decision at the United States Ninth Circuit Court of Appeals relating to the Rosemont federal permits before the end of the year. And at Mason, we will continue to compile and interpret historical data on our land package in preparation for a future drill program.

As I've said before, we are a disciplined copper-focused growth company. And as we look to deliver the next stage of growth at Hudbay, our priorities over the medium term will be to unlock value at Rosemont, drill the Copper World discovery, test the Constancia regional exploration targets, add reserves to the Snow Lake mine plan, advance Mason and exploration pipeline projects, and optimize value from Snow Lake gold while remaining vigilant for other opportunities that match our strategic criteria and never losing focus of prudently managing our balance sheet.

And with that, we are now happy to take your questions.

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

Peter, I was wondering if you could give us a little bit of a refresher on Peru with respect to your stability agreement in terms of the longevity of it. And with the political changes there recently, has there been any engagement to date or any color you can provide on whether the new administration plans to honor your existing stability agreement?

Thanks very much for the question. Yes. So absolutely, we have a tax stability agreement in place in Peru that stabilized administrative tax, free remittance of profits and access to foreign currency rules through 2021 or -- I'm sorry, 2031 or '32 for both Constancia and Pampacancha. Ultimately, it provides a corporate tax rate of 32% for this period and it allows us to keep our accounting records in U.S. dollars for tax, eliminating foreign exchange risk. And in addition, it allows us to claim accelerated depreciation on movable assets. There's other administrative stability that includes mining royalty rates in Peru.

Now your question whether we think that the government might renege on that. I would say that the government would have to change the constitution in order to change or terminate legal stability agreements. In this case, the new constitution would have to allow for these changes or terminations and state that these changes could be retroactively applied to legal agreements under the previous constitution.

We think this is pretty unlikely as it would violate several constitutional principles. And any changes to the constitution would require a majority vote in a much divided Congress. Remember that Mr. Castillo or President Castillo's government does not have a majority in Congress, and the process to change the constitution would take 1 to 2 years as it would require either a majority approval in Congress or in other words, over 50%, or a referendum requiring 2/3 approval in Congress in 2 consecutive legislative sessions. So in the unlikely event that our stability agreement is ultimately changed or terminated, we, of course, have international arbitration rights available to us, and we don't think it will get to that point.

Now to your second question with respect to engagement with the current government. Absolutely. We started our engagement with Mr. Castillo's government before he was named as President just out of -- because that's the right thing to do. We are engaged with the government at various levels and we'll continue to be engaged with the government.

We understand fairly well what he is trying to achieve in Peru. And we do think that what he's trying to achieve in Peru is fairly well aligned with our practices at Constancia in any case. He is looking for what he calls social investment. And what we do at Constancia is precisely that. We have over $10 million targeted towards social investment this year as well as being -- having been in a position to assist our communities with getting access to substantial additional funding that is available under the current [Monero].

So a long answer to your question, Orest, yes, we do certainly have engagement with the government.

And just as a follow-up, I mean, given the current uncertainty or maybe perceived uncertainty, does this change at all some of your growth plans in Peru with respect to, call it, exploration on some of those other deposits? Or is this -- do you think this has no impact?

Orest, it doesn't change those plans whatsoever because we believe very, very strongly in the potential of those satellites north of Constancia. And regardless of what the fiscal environment turns out to be, we think that a discovery that is something of the like of a Las Bambas or Antapaccay something like that carries enormous value regardless of that fiscal regime, and we will continue to pursue our efforts in that regard.

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

Maybe just follow up on Orest's last question. I know you noted in the release that you are working on Llaguen right now in Peru. But I think you had previously said you were expecting to be drilling at some of the other properties in Peru closer to Constancia like Maria Reyna, Caballito and Kusiorcco this year. Can you maybe talk a little bit about what your exploration plans are for those properties that are closer to Constancia?

Sure, Jackie, and thanks for the question. So we have already done, as I mentioned in my remarks, some -- sort of pilot drilling at Quehuincha. But our focus is very much on Maria Reyna and Caballito right now. These are the 2 properties that are owned by the Uchucarcco community. Our Peruvian team is engaged with the community in order to reach an agreement in order to access those properties. We are hopeful that we will conclude that agreement during the course of this year. But remember what I've said previously that once we conclude that agreement, there's still a way to go because we have to do this -- we have to go through Consulta Previa process. We need to go through environmental baselining and ultimately obtain the drilling permit needed to commence.

And so it's unlikely, I think, that we would start actual drilling much before very late next year, if next year, although we would -- we should be able to commence with surface investigation as soon as we have a community agreement. And perhaps I just ask Cashel to comment if there's any other nuance that I haven't mentioned.

No. Yes, I think that's right, everything you said is correct. And we know what's happening in Peru, we know these negotiations take some time.

And Jackie, you mentioned Llaguen. Our drill program is underway there. We're drilling. We're confirming the previous holes 20 or so holes were drilled by Vale. That's going well with community participation. We've had no interruptions, and we hope maybe in the next quarter or 2 to be able to give some results from that drilling. So it shows that drilling can be accomplished in Peru in difficult areas, and we're still working towards our agreements with Uchucarcco.

And maybe that's a good segue, speaking of difficult areas. You didn't really talk a lot about Rosemont in your release this time. And certainly, there's a lot more commentary on Copper World. Can you maybe give us a bit of an update? I know it's difficult given that you don't have the court ruling at Rosemont yet, but is Copper World looking like relatively more attractive at this point, would you say, versus Rosemont? Or can you give us any commentary on how those 2 projects sort of stack up against each other?

Jackie, that's a super interesting question. And I would say that our top priority remains to get Rosemont through the Ninth Circuit Court of Appeals. That is priority #1. But the Copper World discovery certainly does provide us with a very, very interesting -- either alternative or add-on. And so we've done, as you know, a lot of work on Copper World. We've identified 4 separate deposits with a potential for several more in a strike length of some 5 kilometers. Some of these drill results that I mentioned are pretty outstanding. And the most interesting feature is that mineralization starts from surface.

So clearly, it's something that you can get into right away. But we have to complete the assay program that's currently underway so that we can develop that inferred resource by the end of the year, so that we can, in turn, complete a PEA early next year, and that really will inform us with respect to sort of how the one stacks up against the other.

But in any case, I'd like to come back to my initial comment that Rosemont does remain a priority for us. But Copper World presents a super exciting potential alternative or addition.

Our next question comes from Greg Barnes of TD Securities.

Peter, I'm just going to follow up on Jackie's question on Copper World. Just assuming you go ahead with that alone, for argument's sake, are we looking at -- I'm assuming separate -- 4 separate deposits, as you noted, 4 separate pits, a centralized milling facility. Obviously, you need tailings, do you have the space? What is the concept that you're working on for the PEA?

Yes. Greg, thank you for that. So remember that there's a combination of oxide mineralization and sulfide mineralization. So there's potential, obviously, for an oxide operation as well as a sulfide operation. We have adequate land on which to deposit tailings as well as on which to deposit waste rock, so we feel fairly comfortable about that.

Now the key will depend on the mineral processing, technical studies that we undertake as to what the processing route for the oxide might be. So before we complete that work, we don't know whether it's going to be an [S60W] plant or what. But for sure, there would be a combination of 2 plants in order to treat, on the one hand, oxide mineralization -- or the oxide ore and on the other hand, the sulphide.

Cashel, do you want to elaborate on that at all?

Yes, sure. It presents a great -- a good problem for our engineers, geologists and our metallurgists. And what we're discovering is that exactly Peter said, oxide mix transition and also sulphide ore. So there's a combination of flow sheets that might be optimal. There might be a starter mine on an oxide. There might be a sulphidization plant, and there certainly will be in the future of sulphide flotation.

So what we're doing is we're doing the leaching tests to understand exactly what that is, and that takes time. That's some 6 or 8 months. So that is something we expect maybe by the end of this year or very optimistically more likely early next year or into next.

And so we're doing all that work. That's a metallurgical work. We continue with 4 drills right now. We're turning. We're following up on our drill intersections on the private land.

And then one of the things our engineers are looking at is optimizing that drill program to understand where this mineralization is on private land in the future. If it extends on to government land, how do we optimize those pits and the placement of waste, the placement of tailings, et cetera, et cetera.

And so we're working towards it. It's going to take, again, the better part of the rest of this year to figure out our mine plans. But we think with the lower strip ratio, when in comparison to Rosemont, it will present a very positive set of economics and a very compelling case to move forward.

And I don't understand what the permitting approvals process is on private land versus government land. So what do you need to do to move forward with this from that perspective? And how long would it take?

Greg, there's only 2 primary states approvals that are required. One is an air quality permit and the other was an aquifer protection permit. As I said, those are both state level permits and they are much simpler than the federal permits. The duration required for each of those permits is -- I would venture a guess of a year -- 1 to 2 years.

Yes. I think that's right. And those -- if you remember, those are the 2 types of permits we have successfully defended in the past at Rosemont.

So no federal permits whatsoever required?

That is the goal.

That's the goal with the current mine plan we're trying to obviously construct.

Our next question comes from Lawson Winder of Bank of America Securities.

Congratulations on getting -- concluding the majority of those union agreements. Maybe just on those collective bargaining agreements, do they potentially add any cost pressures? For example, were there any signing bonuses, maybe if the ones in Peru [had any] inflation rate is built into those contracts?

Lawson, I'd say, in general, that the agreement that we concluded in Peru are consistent with everything else that's been done elsewhere in Peru. And I don't think that there's any material effect on our overall costs.

Great. And then just on the COVID costs in Peru. So they stepped up a bit in Q2 versus Q1. Now still early in Q3, but where are you seeing those costs trending so far? Are they continuing to march up? Or are they starting to dissipate at this point?

Lawson, what I would say is that we expect them to be flat for the remainder of the year. So I mentioned that we had $6.3 million of COVID-related costs in the second quarter. And these costs arise out of an abundance of caution with how we operate our mines. So for example, we have extended the duration of the quarantining in Cusco and Arequipa. We have, in several cases, demobilized on a progressive basis operators from the mine when we've had events that have suggested that we should be exercise caution. So we sort of expect that to continue at that level for the remainder of the year. So roughly, I would say, $25 million or so for the year in COVID-related costs. That's flat from now on.

Okay. Great. That's very helpful. And then also on the freight and related costs in Peru. They also seemed to tick up quite a bit in Q2 versus Q1, at least on a per tonne of con basis. Is the Q2 level sort of persisting into Q3? Is that what we should expect for the remainder of the year as well?

We have more sales. So on a relative basis, we shouldn't expect any significant change.

Versus Q2, okay. Great. Yes. And then just finally, on the exploration agreements for access to Maria Reyna and Caballito. Will those -- once the settlement is reached, will there be any sort of community cash payments that will be made? Or is this just an agreement in principle that sort of sets the stage for future exploitation, consultations where there will be a cash payment?

Lawson, there would no doubt be some cash payments to the community because that's the only incentive that they really have other than, of course, the potential for a mine down the road. But they will be looking for some interim cash payments, of course, not at the same level as exploitation agreement levels.

Our next question comes from Stefan Ioannou of Cormark Securities.

I'm just, I guess, on the question about the COVID cost in Peru, just to be clear. You mentioned your guidance still stays in effect for 2021. Just wondering, is that based on cost to date and then costs going forward, including or excluding that sort of, give or take, $6 million a quarter run rate?

Just so that I understand your question fully. You're asking me if the costs, the $6.3 million, are costs just in the quarter and if we expect that run rate? That is the run rate in Peru?

Well. Well, I guess if you have another sort of $12 million through the remainder of this year, will you still be in line with your cash cost guidance for the year? Or will that put you over?

We would obviously have to adjust the guidance. But -- so what I have been saying is that we are within guidance excluding those COVID-related -- yes.

Okay. Okay. Okay. Got it. And most of my other questions have been asked. But just could you maybe just give us a bit of an update on sort of the Flin Flon strategy here going forward? Obviously, 777 is still scheduled for closure, I guess, in June or so of next year. Is the plan -- is there still to put the concentrator and tailings on care and maintenance and then shut everything else down? Or where are we at with that?

Yes, we will put the -- so obviously, the 777 mine itself would be closed, and then we would put the process facilities on care and maintenance.

Okay. And is the refinery going to be closed or put on care and maintenance?

Sorry, the zinc plant will be closed.

It will be closed. Okay, okay.

(Operator Instructions) Our next question comes from Dalton Baretto of Canaccord.

Peter, I'm trying to understand the go-forward plan for Rosemont here post the decision. So if you win, I mean, no doubt it's going to be appealed and that's likely going to take a couple of years. So kind of a 2-part question. Number one, are you willing to move forward with major investments given the uncertainty around that? And number two, how is that appeal going to impact your search for a partner on the project?

Dalton, thanks for the question. Look, I think that -- there is no point for us. There's no point in us searching for a partner until we have -- until the appeal is behind us. So that's one thing for certain.

The other piece is that if we win that appeal -- I'd like to say when we win that appeal. But if we win that appeal, as you have suggested, it's just not smooth sailing because there's a number of things we have to do. We, of course, have to revalidate the estimate because some time has passed. But remember, too, that the case under review by the Ninth Circuit Court of Appeals is effectively the Keystone case that would stop all activities with a singular decision, which is why we think judge sort of landed on that ruling in the first place. But there are several other decisions that remain to be made, which, in fact, could impact how this project is moved forward.

The other thing to note, of course, is that the biological opinion is still being addressed by the forestry service and needs to come back to the court. So there are a number of things that could extend the period of time required in order to implement construction at Rosemont. So what I'm trying to say to you is that you are exactly right. And that is at least a couple of years that would be required probably in order to start moving into the field.

So given that scenario, does it make sense to also consider Rosemont in the context of Copper World and on private land only?

Sorry, could you repeat the question?

No, I just said so given what you just said and potential ongoing delays and noise, does it make sense for you guys to also consider Rosemont as part of kind of the Copper World series of deposits and look at the project on private land only? Does that scenario become more preferable, I guess, I should say?

100%. And in fact, what I should have said as part of my response to the first part of your question was that although we see that there's some time required in order to resolve Rosemont regardless of whether we get the decision now or not, Copper World is a very, very, very compelling alternative, if we need an alternative or a very, very compelling add-on.

But for sure, we are going to push Copper World forward very hard. And I think the time line that we have outlined specifically that we're going to complete an inferred resource by the end of the year and publish a PEA early next year should give you a sense of the value that we place on this deposit, and the potential alternative or incremental effect that it could have with respect to Rosemont.

Okay. So then maybe just on that one final question for me. Permitting and legal issues aside, on the activity at Copper World right now, are you seeing -- are you attracting any NGOs to those projects?

No. We have very, very little attention in the project. We've actually had a fair amount of positive media coverage on them. But I think there's general recognition that this -- the project is on our private land. And so it draws much less attention.

Our next question comes from Pierre Vaillancourt of Haywood.

Peter, I was wondering if you could be a little more specific on Constancia with regards to how we should look at that going forward? I mean, I think we recognize that despite the stability agreements, you're going to have to make compromises with the Castillo government. So how do we model that in terms of looking at taxes, looking at community payments, that kind of thing? I mean, things are going to change. There's no question there. Maybe be a little more specific on that.

Pierre, look, it's very difficult to be specific in an environment where we don't have any of the specifics yet. But what I would say is that the team in Peru is determined to work with the current administration. And that applies -- we apply to any administration. And the relationship that we have built -- interim developers with the communities in our area of interest or direct influence and indirect influence, I think, sort of sets the tone for how we will work with the government.

We have targeted, as I said, in one of the earlier questions, some $10 million of social investments into those communities. But that is -- that's direct investment into the community, and that is aside from the expenditures we have within those communities on services that they provide. So obviously, we're going to have to work harder at this, and we're going to have to work together with the government in order to better understand its objectives of social investment.

But I still do think an area that we will target hard is how to liberate funds that are available to those communities from proceeds of the current [Monero]. But to provide you with any sort of discrete or definitive information on how that -- how the environment may turn out is very, very difficult to do other than to remind you that we do have stability agreements.

Okay. And just with respect to the whole Copper World discussion, I mean, based on what I'm hearing on the call here, even if you do get a favorable decision for Rosemont, I'm getting the sense that maybe Copper World may still yet become the priority given potential appeals. And so post the PEA, maybe that really becomes the focus. Is that a potential outcome?

I mean if you look at the range of potential outcomes, of course, absolutely, it is a potential outcome. We're driving Copper World forward hard. And we hope that it could compete with Rosemont. So never say never. I think that if Rosemont timing does drift, then Copper World certainly has the potential to become a key area of focus or a priority.

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

Thank you, operator, and thank you, everyone, for taking the time to join us today. Please feel free to reach out to our Investor Relations team if you have any further questions. You may disconnect your lines at this time.