Lundin Mining (OTC:LUNMF) Corporation (LUN.TO) has reported a strong financial and operational performance in its third-quarter earnings call for the period ending September 30, 2024. The company announced significant joint venture acquisitions, increased copper production, and declared its 31st consecutive quarterly dividend.
Revenue for the quarter was close to $1.1 billion, with an adjusted EBITDA of approximately $458 million. Lundin Mining also highlighted its focus on optimizing operations and reducing costs, while progressing on key projects such as the Josemaria joint venture with BHP and the expansion of the Caserones mine.
Key Takeaways
- Lundin Mining reported a Q3 revenue of nearly $1.1 billion and an adjusted EBITDA of roughly $458 million.
- The company produced approximately 100,000 tons of copper, with Candelaria operation contributing 50,000 tons.
- Lundin Mining increased its ownership in the Caserones mine to 70%, adding 20,000 to 25,000 tons of copper to its production profile.
- A joint venture with BHP on the Josemaria Project is underway, with BHP investing $690 million for a 50% stake.
- The company declared a quarterly dividend of $0.09 per share and revised full-year capital guidance down to $720 million.
- Lundin Mining is accelerating exploration at Caserones and Josemaria, targeting high-grade mineralization.
- The company is aiming for cost reductions and improved efficiencies across its operations.
Company Outlook
- Lundin Mining is well-positioned for growth, maintaining a strong balance sheet and focusing on cost optimization.
- The company is preparing an updated technical report for the Chapada site, expected next year, and anticipates significant cash flow generation in the coming year.
- Lundin is advancing exploration efforts and plans to restart drilling at Angelica and Cumbre Verde.
- The company expects to meet its revised guidance for copper and zinc production, with a conservative leverage projection below 2.5 times.
Bearish Highlights
- Higher gold grades at Chapada are not expected to continue into 2025, potentially impacting future production.
- Challenges at Neves-Corvo may pose risks to future production forecasts.
- The budget for the Argentina project next year remains uncertain pending alignment with BHP.
Bullish Highlights
- Lundin Mining is focusing on improving gold recoveries, which could add over $100 million in NPV.
- The company is progressing with its joint venture on the Josemaria Project and has increased ownership in the Caserones mine.
- Ongoing evaluations for the Candelaria underground expansion and the Saúva project show positive prospects.
Misses
- Capital expenditures for the quarter were lower than forecast, suggesting potential delays in project developments.
- The company has yet to define the schedule and capital requirements for the Vicuña Argentina Phase 1 development.
Q&A Highlights
- Free cash flow outlook is dependent on copper prices and capital expenditures for the Josemaria project.
- The company is managing a shift to a 50-50 payment structure with BHP starting January 1, 2024, for the Argentina project.
- Labor agreements, including a one-off bonus payment of $6 million, have been fully expensed in Q3, with ongoing union negotiations at Caserones.
- The timeline for future phases of the Josemaria project under the RIGI bill is still being developed, with a work plan expected post-finalization of the joint venture with BHP.
Lundin Mining's Q3 earnings call painted a picture of a company on a solid financial footing, actively pursuing growth opportunities while maintaining financial discipline. The company's strategic acquisitions and project developments aim to enhance its production capabilities and strengthen its market position in the mining industry. With a focus on cost optimization and operational efficiencies, Lundin Mining is poised to capitalize on its robust operational performance as it moves into the final quarter of 2024 and beyond.
InvestingPro Insights
Lundin Mining Corporation's strong financial performance in Q3 2024 is further supported by data from InvestingPro. The company's market capitalization stands at $7.73 billion, reflecting its significant presence in the mining sector.
InvestingPro data shows that Lundin Mining's revenue for the last twelve months as of Q3 2024 was $4.15 billion, with an impressive revenue growth of 32.13% over the same period. This aligns with the company's reported Q3 revenue of nearly $1.1 billion and underscores its robust financial position.
The company's profitability is evident in its EBITDA of $1.48 billion for the last twelve months, with a remarkable EBITDA growth of 56.33%. This correlates well with the reported adjusted EBITDA of $458 million for Q3 and supports the company's focus on operational efficiency and cost optimization.
InvestingPro Tips highlight that Lundin Mining has shown a strong return over the last three months and five years, which is consistent with the company's strategic acquisitions and project developments mentioned in the earnings call. Additionally, analysts predict that the company will be profitable this year, aligning with management's positive outlook on cash flow generation.
For investors seeking more comprehensive analysis, InvestingPro offers 7 additional tips for Lundin Mining, providing deeper insights into the company's financial health and market position.
The company's dividend yield of 2.53% and its 31st consecutive quarterly dividend declaration demonstrate Lundin Mining's commitment to shareholder returns, despite a slight dividend growth decline of 0.6% in the last twelve months.
These insights from InvestingPro complement the earnings call report, providing investors with a more rounded view of Lundin Mining's financial performance and future prospects in the mining industry.
Full transcript - Lundin Mining Corp (LUNMF) Q3 2024:
Operator: Good day and thank you for standing by. Welcome to the Lundin Mining Third Quarter 2024 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Jack Lundin, President and CEO of Lundin Mining. Please go ahead.
Jack Lundin: Good day, everyone. Welcome to Lundin Mining’s third quarter 2024 conference call. Thank you for joining. Yesterday, we reported our operating and financial results for the three-month period ending September 30th. A press release and presentation summarizing the results are available on our website, where a recording of this webcast will also be made available. All figures presented are in U.S. dollars unless otherwise noted. I would like to remind everyone that today’s presentation and certain comments on the call include forward-looking information and are subject to risks and uncertainties. For further information, I will turn your attention to the cautionary statements on Slide 2 for reference and our latest relevant filings on SEDAR. On the call with me today, I am pleased to be joined by members of our executive team, including Juan Andres Morel, our Executive Vice President and Chief Operating Officer; and Teitur Poulsen, our Executive Vice President and Chief Financial Officer. Starting with key highlights in the quarter, it was an active Q3 for the company. In July, we announced the transaction to acquire Filo Mining in partnership with BHP, where we will form a new joint venture to include both the Filo del Sol and Josemaria Project located within the Vicuña District in Argentina. This transaction sets the company on a trajectory to grow our business considerably from where we are today. The deal aligns with our long-term corporate ambitions to become a top-tier copper producer with a best-in-class approach to responsible mining and we will provide further details later in this presentation. Another key highlight in the quarter was increasing our ownership in Caserones by a further 19% to 70%. This immediately adds valuable copper tons to the company’s attributable production profile. Caserones is a long-life asset with favorable cash flow generation and complements Lundin Mining’s portfolio, given its proximity to Candelaria, our largest copper mining operation, just over 100 kilometers to the Northwest, and to the Josemaria Project, which is approximately 30 kilometers to the South. Highlighting our operational performance, we achieved copper production of approximately 100,000 tons and are on track to come within our annual copper guidance range, which has been updated to 366,000 tons to 389,000 tons. We have tightened the guidance ranges on several of our operating assets as we head into the end of the year. Candelaria had an excellent quarter, producing 50,000 tons of copper driven by planned higher head grades in Phase 11 of the open pit mine. This was one of Candelaria’s strongest quarters on record, which contributed to solid revenue performance of over US$1 billion for the company. Referring to our other metals, we produced 46,600 tons of zinc and 47,000 ounces of gold. The $1.1 billion in revenue translated to approximately $458 million in adjusted EBITDA for the period. And lastly, we declared our regular dividend to shareholders for the 31st consecutive quarter. Juan Andres, our Chief Operating Officer, will now discuss the performance of our operational assets.
Juan Andres Morel: Thank you, Jack, and good morning everybody. As previously mentioned, the improvement in grades in Candelaria has put the company in a good position to meet consolidated copper production for the year. Copper production for the company was 100,000 tons for the quarter, which is close to a quarterly record for the company. During the period, gold production totaled approximately 47,000 ounces, which is very good in a very strong gold price environment. Gold production was primarily driven by stronger grades at Candelaria and Chapada. At Candelaria, production was 50,000 tons of copper and 29,000 ounces of gold. As planned during the quarter, the company mined higher-grade material from Phase 11, and copper head grades averaged 0.76% for the period, with several days over 1%. We expect these higher grades to continue throughout most of the fourth quarter. As previously announced, in August, the job action at Caserones, which lasted 14 days, impacted production. During this period, we ran at half capacity. We were able to reach an amicable solution with a union at Caserones and a safe back-to-work plan, and an efficient ramp-up operation was achieved. During the quarter, the mine sequence at Caserones was impacted by the strike, along with hydrogeologic conditions in Phase 5 of the pit, which led to a change in the mine sequence resulting in lower grades and recoveries during the quarter that also contributed to lower production. For the remainder of the year, we’ll continue to focus on throughput and recoveries in the mill. In September, we averaged 4,400 tons per hour, which is an improvement of 200 tons per hour to 300 tons per hour over the historical performances. We have updated guidance at several of our assets, including Caserones, that we will get into later in the presentation. Production at Chapada was in line with expectations. Mill throughput was strong and we processed 6 million tons in the quarter to produce 11,700 tons of copper, along with 18,000 ounces of gold. Higher gold grades were generated from fresh ore from the South and Central pits, which replaced planned feed from older low-grade stockpiles in order to prioritize gold production in light of elevated gold prices. Included in other copper production is Neves-Corvo, which produced 6,700 tons, Zinkgruvan, which produced 1,400 tons, and Eagle, that generated 1,000 tons of copper for the quarter. Zinc production this quarter was in line with last quarter at 46,600 tons. At Neves-Corvo, zinc production was 29,500 tons. Operations continue to focus on ore and plant availability to increase throughput going into the fourth quarter. Good progress is being made on the mining method adjustments and the updated cable bolting requirements. During the month of August, there was a record in shaft hoisting of 440,000 tons over the month, in addition to a record zinc production of 10,500 tons. During the month of September, the daily shaft hoisting of 19,000 tons set a new record for the mine. I just want to congratulate the team at Neves-Corvo on a job well done. Zinkgruvan produced 17,100 tons of zinc. Production was impacted by lower grades in the month of August, caused by a change in sequencing from unplanned maintenance interactions and challenges with paste delivery and wet ore. We expect zinc rates to improve over the remainder of the year. Ramp rehabilitation continued at Eagle throughout the quarter, limiting access in the lower Eagle East ore body. The mine ran at reduced capacity during this time. Nickel production was 900 tons for the quarter. Ramp rehabilitation has largely been completed and we expect throughput rates to increase in the fourth quarter. Eagle is tracking to the guidance of 7,000 tons to 9,000 tons of nickel for the year. As we enter the latter half of the year, we were able to tighten guidance ranges and reiterate consolidated copper guidance for the year, which is now 366,000 tons to 389,000 tons. The higher head grades at Candelaria from Phase 11 are expected to continue throughout most of the fourth quarter, putting us on track to meet the upper end of the original guidance at Candelaria. We have tightened this range and slightly increased it to 165,000 tons to 173,000 tons. At Caserones, the reduced throughput as a result of the labor action impacted full year guidance, and we have adjusted production estimates to 121,000 tons to 125,000 tons of copper, which is in line with the original guidance from the beginning of the year. Guidance at Zinkgruvan has increased from 79,000 tons to 83,000 tons of zinc. These increases were offset by adjustments at Neves-Corvo and overall consolidated zinc production has been adjusted to 190,000 tons to 199,000 tons for the full year from 195,000 tons to 215,000 tons. Annual goal guidance has remained unchanged at 155,000 ounces to 170,000 ounces, which incorporates an increase in guidance at Chapada, offset by the slight reduction at Candelaria. Last quarter, nickel production was adjusted and we expect to be able to meet the revised guidance for the remainder of the year. As mentioned, ramp rehabilitation has been primarily completed, and we anticipate throughputs to increase in the fourth quarter back to normal levels. Overall, we are in a good position to achieve our consolidated copper guidance range, as we outlined at the beginning of the year, the upper end being slightly revised as we enter the fourth quarter and we have a greater visibility to the remainder of the year. Throughout the year, we have been discussing some of the asset optimization efforts we have been undertaking at Chapada, Candelaria and Caserones. Chapada is the most advanced, where we are well into the implementation phase of the optimization. In 2023, at Chapada, we started a full optimization exercise to identify savings and improvements. Over the last year, we have achieved significant savings and we have been able to reduce our cash costs by approximately $0.25 per pound to $0.35 per pound. When we look at the 2022 actual cash costs of $2.08 per pound, and year-to-date, we’re sitting at $1.75 per pound, which is about $20 million per year to $25 million per year difference in free cash flow, which is a great outcome, and we think we will be able to continue to save costs in certain areas that will help offset some of the cost pressures that we have seen. We have been able to improve haulage cycle times, fleet availability, blasting fragmentation and contracting strategy. In conjunction with the optimization efforts, we have redesigned the mine plan, which has reduced annual mining rates by 30 million tons while maintaining the same production profiles as previous. This has been achieved through optimizing stockpile feed levels and we now plan approximately 30% or 6 million tons to 8 million tons to our mill feed from the stockpile and reduce annual stripping requirements. This has helped lower our average strip ratio from 3.4 to 1 from 2.4 to 1, and reduce mining costs per ton mill from $9.50 per ton in 2022 to $6.50 per ton. We continue to work on gold recoveries, and especially on some of the older stockpiles. We have ran various tests with different reagents to improve recovery. A 5% recovery improvement could add over $100 million in NPV over the life of the mine. This will be a continued focus for us. The annual savings identified will be included in our 2025 loan plan and cash cost guidance we will put out in January. An updated technical report for Chapada will be filed next year as well. We’re running the same asset optimization exercise at Candelaria and Caserones focused on productivity, process improvements and efficiencies to drive down costs. We are currently in the design and early implementation stage of this process and will provide more updates as we advance in this initiative. I will now turn the call over to Teitur to provide a summary on financial results.
Teitur Poulsen: Okay. Thank you, Andreas, and good morning, everybody. So, during the quarter, the company generated almost $1.1 billion in revenue, which is in line with the previous two quarters and resulting in a year-to-date revenue of $3.1 billion. Our revenue mix remains predominantly leveraged to copper with 75% of the quarter’s revenue, which is a slight decrease quarter-over-quarter given higher gold prices and higher gold and zinc volumes sold. Zinc and gold each contributed approximately 9%, whereas nickel only contributed 1% due to the lower sold nickel volumes given that the Eagle mine has been running at reduced capacity during the quarter. Looking at volume sold and realized pricing for the period, we sold 90,000 tons of copper at an average realized price of $4.29 per pound of copper and 41,000 tons of zinc at $1.29 per pound. This, coupled with the sale of our other metals, generated revenue of $1.073 million and is the fifth consecutive quarter with revenue generation in the region of a $1 billion. It is also worth noting that the level of inventory health of concentrate at quarter end was higher than normal, particularly at Caserones, where a planned shipment at quarter end slipped into October. During the quarter, provisional pricing adjustments from prior periods were negligible, and at the end of the third quarter there were approximately 90,200 tons of copper that were provisionally priced at $4.44 per pound and remained open for final pricing adjustments, as did 16,800 tons of zinc at $1.39 per pound. Production costs in the third quarter totaled $581 million. This is a slight decrease from previous quarters driven by lower throughputs at Eagle and the reclassification of rehabilitation costs to other income and expenses, as well as by lower sales volume at Caserones. Lower diesel costs, as well as continued favorable effects on the Chilean pesos and Brazilian real, also contributed to lower costs. Total (EPA:TTEF) costs at Candelaria have been fairly stable over the last few quarters. During the third quarter, higher mining rates increased total costs, while higher by-product credits and favorable exchange rates positively impacted cash costs, which were $1.55 per pound of copper for the quarter. We also recorded a one-off charge of around $11 million at Candelaria during the quarter relating to costs associated with repairs and maintenance, which previously had been recorded to inventory. Input costs such as diesel and electricity reduced marginally at Caserones during the quarter, whereas the renewed agreement with one of the labor unions resulted in a one-off bonus payment of approximately $6 million. A weaker Chilean pesos as well as lower sold volumes resulted in a reduction of $40 million in production costs during the quarter, whilst the lower sales volume led to a higher C1 unit cost to $2.96 per pound. C1 unit costs at Chapada were recorded at $1.37 per pound copper, which is lower than previous quarters and favorably impacted by lower electricity costs, higher by-product credits, as well as a weaker Brazilian real. Effective from mid-year, Chapada entered into a new 10-year purchase power agreement with Serena [ph], resulting in Chapada’s electricity price falling from the high $50s per megawatt hour to $38 per megawatt hour. Despite various input costs falling at Chapada during the quarter, the absolute production cost increased driven by a higher mill throughput of 6 million tons, as well as higher sales volume, leading to more inventory being charged to production costs during the quarter. Based on the revised production guidance estimates, we have updated cash cost guidance at several of our sites. Chapada cash cost guidance has come down to $1.55 per pound to $1.65 per pound from the $1.95 per pound to $2.15 per pound, reflecting a reduction in certain input costs, a higher by-product credit due to higher gold production and gold prices, as well as a weaker local currency being assumed for the remainder of 2024. Zinkgruvan cash costs have improved to $0.40 per pound to $0.45 per pound of zinc and Eagle costs have increased to $3.70 per pound to $3.90 per pound of nickel. All other cash cost estimates remain unchanged. Total sustaining and expansionary capital expenditure for the quarter amounted to $201 million, which was lower than forecast. We have lowered sustaining capital expenditure guidance across a number of sites, resulting in reducing the full-year consolidated guidance from $795 million to $720 million. The capital guidance revision at Caserones was lowered by $40 million to $135 million. The change in guidance is the result of a combination of reduced stripping requirements and a delay in capital projects. Candelaria’s CapEx was lowered by $25 million to $275 million, primarily the result of savings and the deferral of projects into next year, including equipment deliveries and infrastructure projects. At Josemaria, we spent $50 million during the quarter and year-to-date we have spent approximately $193 million. Capital guidance for the full year at Josemaria has been revised by $5 million to $130 million. Finally, exploration guidance has been increased by $7 million to $55 million for the year to accelerate exploration efforts at Caserones and follow up on building at Cumbre Verde in Argentina after positive results in the first half of the year. Slides 18 and 19 highlight our third quarter key financial metrics. We generated adjusted EBITDA of $458 million and adjusted operating cash flow was $305 million during the period, with cash taxes paid during the quarter of $43 million. Free cash flow from operations amounted to $2 million during the quarter and was negatively impacted by a working capital build of $166 million as a result of the timing of sales at Candelaria and Chapada. Adjusted earnings were $73 million for the quarter. We ended the third quarter with a net position of around $1.5 billion excluding capital leases, with our leverage ratio still remaining below 1 time adjusted EBITDA. Our liquidity position remains ample, with roughly $1.4 billion in availability on our revolving credit facility at the end of the third quarter. The company had certain big-ticket cash flow items during the quarter, and Slide 20 presents in greater detail the sources and uses of cash in the quarter. Operations generated $305 million of cash flow in the third quarter before working capital of $166 million. The company drew down $486 million in debt to fund the Caserones transaction contingent payments at Chapada along with the purchase of shares at Filo, which collectively amounted to a total cash payment of $427 million. This was the last contingent payment due at Chapada and the first deferred payment to JX Nippon for the Caserones acquisition. A quarterly dividend payment of $0.09 per share was made during the period amounting to $52 million, as well as distribution to non-controlling interests amounting to $63 million. At the end of the quarter, the company had $296 million in cash and cash equivalents. So, all in all, another solid financial performance from the company for the third quarter, and the company’s balance sheet remains very healthy and positions the company well to pursue its growth ambitions in South America. I will now turn the call back to Jack to talk about the recent transaction with BHP.
Jack Lundin: Thank you, Teitur. This page outlines the joint venture structure between the company and BHP. At consideration for 50% in the Josemaria Project, which will form part of the new JV, BHP will pay Lundin Mining US$690 million, subject to adjustments at closing. The transaction will consolidate two key advanced projects within the Argentinian Vicuña District and create a leading platform in one of the most geologically prospective regions in the world and establishes us as having one of the leading growth profiles in the copper sector today. On this slide, we can see a planned view of the prolific Vicuña District. The Filo del Sol deposit is located to the south of Caserones over the border and is to the southwest of the Josemaria Project in the San Juan province of Argentina. Given the close proximity, both Filo del Sol and Josemaria would support an integrated development scenario as Josemaria is positioned several hundred meters lower in elevation in an area that is favorable to large-scale fixed infrastructure. With the proximity of our other assets in the Atacama region, which includes Caserones, Candelaria and our port in Caldera and desalination facility, we believe there will be meaningful commercial and development synergies for this integrated project. Touching briefly on the Filo del Sol deposit, on this slide we can see a cross-section view looking West. The drill results and the different mineralized zones in this large deposit demonstrate the sheer scale of this asset. The Aurora zone shows abnormally high copper grades as compared to other copper porphyry mineral deposits as you can see in the center of this image. Aurora has grown into one of the world’s largest and highest grade copper gold zones and sits within a large mineralized envelope that further demonstrates the uniqueness of a deposit like Filo. It was drill hole 41 which intercepted 858 meters of 1.8% copper equivalent and since then drilling has continued and has hit major intersections of over 1 kilometer in length containing approximately 1% copper equivalent, outlining a very large-scale base and precious metals deposit that is seen as the crown jewel of this giant metal district. The assets within this JV once in production have the potential to rival the largest mines in the Andean Corridor. Over the past several years the Josemaria team has been dedicated to moving the project forward and we plan to build on this foundation in collaboration with BHP and with integrating the Filo del Sol project. In September, Filo shareholders voted overwhelmingly in favor of the deal and the plan of arrangement was approved by the courts in October. We anticipate the deal to finalize in the first quarter of 2025 where we plan to provide an update on the next steps following closing of the transaction. Another significant business development opportunity for the company was in executing the option to increase ownership in Caserones from 51% to 70% which adds approximately 20,000 tons to 25,000 tons of additional attributable copper production to the company’s production profile. Caserones is a long life mine which yields strong cash flow generation and given its geographical location strategically fits well within our asset base. We acquired operatorship in 2023 and see meaningful opportunities to improve the mine through our asset optimization programs as outlined by Juan Andres earlier in the presentation. Staying within the Vicuña District but moving to exploration we are looking here at a panoramic view of the area facing West. The company is accelerating exploration efforts at Caserones as we now enter the spring season in the Southern Hemisphere. Preparations to restart near mine drilling at Angelica were made at the end of the quarter. Additionally, we increased our exploration budget for the remainder of the year to target higher grade copper breccia mineralization with the objective to improve grades at the existing Caserones resource. Just over the border at Josemaria preparations are underway to recommence our drilling campaign at Cumbre Verde after positive results in the first half of 2024. Cumbre Verde is located in close proximity to both Filo del Sol and the Josemaria Project as outlined on this graphic. One can also get a good sense of the topography in this region from this image. We summarize this quarter as being characterized by solid copper production which resulted in over $1 billion in revenue for the company and nearly $460 million in adjusted EBITDA. Candelaria had one of its best quarters on record producing 50,000 tons of copper at a cash cost of around $1.55 per pound. We anticipate following up with a solid fourth quarter to finish the year within the copper production guidance ranges for 2024. Operationally our team continues to focus on business improvements and optimizing our assets to capture significant savings as Juan Andres discussed earlier. We were active in the quarter growing value for the company by seeking new business opportunities. Last year we purchased 51% of Caserones which can do in excess of 120,000 tons of copper per annum year-over-year and this quarter we increased our ownership up to 70% as our confidence in the asset has continued to grow. The creation of a long-term partnership between Lundin Mining and BHP to jointly develop the Vicuña District in Argentina represents a truly unique opportunity for the business and aligns well with our strategy of becoming a top-tier copper producer all while continuing to provide significant returns to our shareholders. Operator, I would now like to open the call for any questions. Thank you.
Operator: Thank you. [Operator Instructions] Our first question comes from the line of Ioannis Masvoulas with Morgan Stanley (NYSE:MS). Your line is now open.
Ioannis Masvoulas: Yes. Hello. Thank you very much for the presentation. A couple of questions from my side. First on starting off with a potential sale of the European assets. What I’d like to ask here is whether you would consider a piecemeal divestment process or are you more focused on a swift execution with a single buyer that could happen a lot faster? And then within that, would you also potentially consider a stock component transaction or would you favor a cash deal? Thank you.
Jack Lundin: Hi, Ioannis. Thank you for the question. So answering your question regarding our European asset sale process, we are progressing. I would say what’s -- the decision to be made for us is if we will divest fully or maintain both assets in the long-term in our portfolio. As we’ve telegraphed, we’re not in a position where we’re needing to sell. This is a purely opportunistic approach that we’re seeing based on interest that we’ve received and so the process is ongoing. And what I can say is we’d likely see ourselves in a situation where we would divest fully out of Europe rather than maintaining one of the assets. But happy to hear your other question now.
Ioannis Masvoulas: Very clear. Thank you very much. And the second question on going back to Candelaria, you flag that access to the high grade Phase 11 or should continue for most of Q4. Should we interpret that as a great thing high for October, November and potentially exit the year at a more normalized level as we go into 2025 or is it a scenario where higher grades persist into next year? Thank you.
Juan Andres Morel: Hi, Ioannis. This is Juan Andres. Thanks for your question. We were going through a high grade zone in Phase 11. So we expect that these higher grades will end by the end of the fourth quarter. So we don’t see these levels of grades into 2025.
Ioannis Masvoulas: That’s fair. Thanks very much.
Operator: Thank you. Our next question comes from the line of Dalton Baretto with Canaccord Genuity. Your line is now open.
Dalton Baretto: Thanks, Operator. Good morning, guys. I wanted to start by asking about Caserones. The recoveries there seem to be trucking along sort of the high 70s, low 80s, which seems pretty low to me compared to most other copper mills out there. And I’m just wondering, is there a structural reason for this? Is there upside to it and how high can you get them? Thanks.
Juan Andres Morel: Hi, Dalton. This is Juan Andres. During the quarter, we faced a challenge with some issues related to mine dewatering of the Phase 5. So that is the lower pushback in our pit. So due to that, we had to readjust our mine sequence and go back to the Phase 6. In the Phase 6, we have higher levels of oxidation. So that is what temporarily affected the recoveries. But now that the dewatering system is back in operation, we’re back into the Phase 5 and recoveries should go back to normal levels.
Dalton Baretto: And so, Juan Andres, what are normal levels?
Juan Andres Morel: In the upper 80s.
Dalton Baretto: In the upper 80s. Thank you. And then if I can follow up and take a step back there, I think on the last call, you guys mentioned that you would update the market with your full potential initiatives by year end. Is that still your intention? I know Juan Andres touched on Chapada, but maybe if we can get an update on some of the other assets, that would be great? Thanks.
Jack Lundin: Yes. As I said before, as we move forward with the design phase and we enter into the implementation and we start seeing savings being captured and improvement being implemented, we will be reporting to the market on those improvements.
Dalton Baretto: Okay. Great. So it’s not going to be like a one formal update on all the projects and potential savings.
Jack Lundin: No. I think over time, we’ll just try and demonstrate through our asset optimization work that we are bringing down costs or that we are improving performance. And as we’ve outlined in this update call with Juan Andres walking us through the Chapada improvements, we are focusing on our larger assets with Caserones and Candelaria. And I think over time, we’ll start to really demonstrate that the operations are performing better through these improvement initiatives and we’ll try and telegraph that clearly so you understand where the benefits are coming from.
Dalton Baretto: Got it. Thanks, Jack. And maybe one last one for you, if you don’t mind. Can you remind us what the mandated timelines under RIGI are?
Jack Lundin: Yeah. So the RIGI bill was passed through Congress in July at the federal level in Argentina. And so essentially, there’s a two-year window from July to apply to basically adhere to the fiscal framework that is outlined within the RIGI bill. So essentially, a two-year window with an option if needed to negotiate an additional year. So the framework as it’s positioned now would have us getting to July 2026 to apply for adherence to the RIGI bill.
Dalton Baretto: And then once approved, are there mandated timelines around kind of shovels on the ground or spending or anything like that?
Jack Lundin: Yeah. It’s mainly around spending, Dalton, but I think all of that gets outlined clearly when you officially form the fiscal stability with both the province and at the federal level. And so all of those kind of -- all of those triggers are to be negotiated when we’re getting our fiscal stability established. So essentially, that two-year window, we want to see a project kind of being ready to be sanctioned with the capital outlay and the schedule to getting into production and essentially a fully sanctioned project.
Dalton Baretto: Got it. Thanks, Jack.
Operator: Thank you. Our next question comes from the line of Edward Goldsmith with Deutsche Bank (ETR:DBKGn). Your line is now open.
Edward Goldsmith: Hi, Jack and team. Thank you for the presentation. The first question was just going back to the European potential asset sales. Can you give any kind of update on the timing of the potential sale in terms of an announcement or completion? And then the second question is just on working capital, how much of an unwind we should expect to see in the final quarter given the sales lag this quarter?
Jack Lundin: Hi, there. Yeah. So with respect to our European process, we’re definitely looking to conclude and come to a decision before the end of this year. And I’ll hand it over to Teitur to discuss the working capital question.
Teitur Poulsen: Yeah. Hi. Good morning. Yeah. As we said, we had a fairly sizable working capital build in the third quarter over $160 million and the main driver there was simply the build of receivables at Candelaria and Chapada in particular. In the previous quarter in Q2, we had the reverse. We had a release of over $120 million of working capital release. As usual, this all depends on timing of shipments and also the direction of the copper price in the market. A higher copper price normally builds up more receivables and vice versa. So and we also held quite a big portion of finished concentrated inventory at the end of the third quarter, which will be sold during the fourth quarter and we are continuously improving payment terms on our spot trades that we are doing. So we are getting cash in the door quicker now than we did, say, a year ago. So all that baked in, I would hope we could unwind a fair chunk of working capital in the fourth quarter.
Edward Goldsmith: Great. Thank you.
Operator: Thank you. Our next question is from the line of Lawson Winder with BofA Securities. Your line is now open.
Lawson Winder: Thank you very much, Operator, and good morning, Lundin team. Thank you for taking my questions. Can I ask about the free cash flow outlook? So just considering spot commodity prices, potential commitments from the Vicuña JV and potential investments into the Candelaria underground and Setúbal at Chapada, would you expect Lundin Mining to generate free cash flow in the coming, say, two years to three years in advance of construction starting at Josemaria Filo?
Teitur Poulsen: Yeah. Good morning, Lawson. That’s a good question. I guess it all depends on quite a number of factors. Obviously, copper prices is a key driver and then also how fast we ramp up expenditure on Josemaria as a project. I mean, if we go on the current rates, we should generate a fairly sizable free cash flow next year, where copper prices are now. But if we start to ramp up CapEx on the project next year, which is still to be determined, then obviously that free cash flow profile will reduce. But I think if you take a step back and look big picture over the whole development phase of Josemaria and Filo, then clearly we are building up net debt over that period. You can’t grow the business without incurring debt, I would argue. So but we are very comfortable with the balance sheet today. We are conservatively leveraged, so we have a great starting point to embark on this growth ambition. And when we project out in time, with BHP now funding 50% of the development, we don’t really see a scenario where our leverage goes much above 2.5 times. And once you’re in the production, you start to delever that very quickly. So that’s why we are saying on the European sales process, that’s not a must for us. It’s opportunistically driven. And if we don’t sell Europe, that leverage I talked about is assuming we don’t sell it. I think we are in a good position to motor through this growth phase we’re going into.
Lawson Winder: Yeah. Great color. Thank you very much, Teitur. And just to follow up on that on some capital allocation considerations, when might Lundin Mining make a decision on the Candelaria underground and/or Saúva? And then secondly, when you think about the dividend, is the current level something that can be maintained through the coming years and into the start of construction of Jose Filo?
Jack Lundin: Hey, Lawson. I can answer that question. Thanks for that. In terms of capital allocation, of course, we’re looking at an array of projects, near-term and long-term, and we want to make sure we continue to grow the business. And so we’ve got the Saúva scoping study that we’re concluding and it’s looking promising and something that we definitely want to continue pursuing. The exploration continues there and we continue to see meaningful grades and long intercepts. So we’ll continue looking at the Saúva opportunity as an expansion for Chapada. With the Candelaria underground expansion, we’re also progressing with optimization work and looking at the opportunity to expand the throughput from the underground, where the grades are significantly higher at Candelaria in the underground. We’re pursuing those in parallel while we look at progressing once we close the JV transaction. On top of that, we want to have a sound and disciplined capital allocation framework where we are providing returns to our shareholders. We think that that dividend can remain intact and returns to shareholders can remain intact as we progress on this growth profile that Teitur was outlining.
Lawson Winder: Fantastic. Thank you all very much.
Operator: Thank you. Our next question comes from the line of Bryce Adams with CIBC (TSX:CM). Your line is now open.
Bryce Adams: Good morning, all. Thanks for the call. My question is around the guidance updates last night and any read-throughs for 2025. I think you answered it already for Candelaria. Those grades are not sustainable into next year. But what about Chapada Gold grades? Is there some upside to 2025 estimates? And then the opposite for Neves-Corvo. Do the 2024 zinc results put some risk on the 2025 outlook? Thank you very much.
Teitur Poulsen: Good morning. Thank you for the question. The higher gold grades in Chapada was more of an opportunistic approach given the higher gold prices that we’re facing. We do not expect those levels of gold grades to extend into 2025.
Bryce Adams: And then for Nervish?
Jack Lundin: I think, yeah, for Nervish, obviously, we’re continuing to work through this sequence, mine plan sequencing changing since we’ve changed our regimen for ground support. And so all of that’s going into our updated mine plan. But once we come out with our projections for 2025 and our three-year outlook, we’re still kind of refining those numbers and we’ll provide that in about a month’s time or a month and a half time. So you’ll be able to see more clarity on that. But indications are that we should be able to maintain similar to what we’ve projected in our three-year outlook.
Bryce Adams: Okay. Thanks so much.
Operator: Thank you.
Jack Lundin: Thank you.
Operator: Our next question is from the line of Connor Mackay with Ventum Financial. Your line is now open.
Connor Mackay: Hi, guys. Thanks for taking my question. I just wanted to dig in on the exploration programs coming up here. Particularly, you mentioned that you saw some pretty positive results out of Cumbre Verde earlier this year. Is there going to be some sort of comprehensive vicuña exploration update where we can get some detail on those results and what you guys are seeing there? In addition to that, I remember earlier this year, you discussed potentially testing some further field targets on the Caserones land package, such as Helados Norte or other more greenfield targets. Yeah, just more details surrounding those efforts.
Jack Lundin: Absolutely. Yeah. Thanks, Connor, for the question. So, I think a really exciting opportunity for us is, as we’ve been entering and growing our position in the Vicuña District, has been our exploration campaigns. And we did have some positive results, but they really were just scout drilling campaigns that we had in the Cumbre Verde target, which is close to our Josemaria Project. So we are now kind of -- the drills are turning as we’ve entered the spring season in the Southern Hemisphere. We’ll look to follow up on those traces where we definitely found some high-grade veining mineralization and as we continue to assess that opportunity, then I think we’ll continue to look at growing and adding meters and costs to the exploration in that area. Caserones drilling as well. We’re really trying to target the deep breccia zones that are part of the existing resource. So we’ve been drilling throughout the year. I think seven of eight holes have been completed in the Caserones deep resource area. We’ve been finding some higher-grade breccia zones. We want to follow up on that, which will essentially help us with a resource model update, and probably, in the 2026 life of mine plan, we’d start to look at changing that to go after the better grades that we’ve been finding. But then, I think in terms of more pure exploration, we are trying to stay targeted and close to where the existing processing facility is. So you’ve heard of our Angelica deposit. Three of five holes have been completed before pausing in the winter. Now, we’re going back in there and looking to drill, which is an area that has both oxides near surface and then a deeper sulfide breccia zone, which could be a new porphyry system that we’re looking at testing. So there is a lot of prospectivity around the region that we want to tap into, but we need to kind of stay targeted so that we can turn this exploration success quickly into, hopefully, a resource reserve and eventually into a mine plan. So Angelica and the Caserones deep breccia zones are focused in that drilling campaign. And then, the Cumbre Verde follow-up in Josemaria. And as we continue to get more of an understanding, we’ll build on those exploration campaigns.
Connor Mackay: That’s great. Thanks. And then last one for me, just on Eagle East. I know you mentioned the rehabilitation is more or less complete. Are we expecting or should we be expecting unit costs to continue to stay elevated, or should those normalize back to sort of pre-geotechnical issue levels?
Teitur Poulsen: Yes. Thanks, Connor. As we -- as I said before, once we complete the rehab and we go back to, let’s say, nameplate capacity by the end of the fourth quarter, early Q1 next year, we should see production and cost go back to previous levels.
Connor Mackay: Perfect. Thank you very much, guys. That’s it for me.
Operator: Thank you. Our next question comes from the line of Daniel Major with UBS. Your line is now open.
Daniel Major: Hi there. Can you hear me okay?
Jack Lundin: Yes. Kind of yes.
Daniel Major: Yeah. Great. Sorry. Yeah. Two questions. Firstly, in terms of the timeline for more information around Josemaria Filo, you said you’re going to provide some more information once the transaction completes in Q1. What should we be expecting there? Will it be initial capital schedule production or something more preliminary?
Jack Lundin: Yeah. No. So as mentioned, we’re progressing well through the motions of getting the transaction to close and the joint venture established, still targeting the Q1 timeline. At such a time, we would be outlining a work plan that gets us further to derisk both of these assets and bring them together for what would be kind of an integrated project. So after close, we wouldn’t be in a position to announce a CapEx and schedule and development plan. I mean, it’s more of a work plan to get to that phase. So still work to be done, but our eyes are really focused on getting the transaction closed and the JV established and then updating after that.
Daniel Major: Okay. Thanks. So just to follow up on that, you’re spending about $130 million -- $230 million this year, your share in Josemaria. What should we be thinking about the run rate to spend into next year in Argentina?
Teitur Poulsen: Yeah. I mean, yeah, as you said, with the deal construct, we are running the budget as normal during this year. It’s only slightly $5 million to $230 million, as you said. And then the premise of the deal we’ve done with BHP is that we start to pay heads up 50-50 from 1st of January next year. As to the budget for next year, it’s really too early to say. We obviously need to get the alignment with BHP, what that budget will look like. But as Jack says, we’re keen to go after this. And with the RIGI bill out there, it’s imperative that we progress this as quickly and responsibly as we can.
Daniel Major: Okay. Thanks. And then just one final one. Just with the RIGI bill, to be clear, you get some details on the timeline to be applicable. If the project scales up over time, so it’s modular, would the subsequent expansion phases, if that’s the way it plays out, still be covered by the same fiscal term?
Jack Lundin: What was the question.
Teitur Poulsen: Fiscal term.
Jack Lundin: Oh! Yeah. Yeah. Definitely. So what we’re looking at, as we’ve mentioned, is an integrated project, which would then theoretically be entitled to the same fiscal stability framework. So as we look to build this out because of its sheer scale, we would need to do so in phases and Phase 1 still needs to be defined. But as we look to scale up and bring more of this mineralization in, then we would -- we believe we’d be adhering to the same fiscal stability framework.
Daniel Major: Very clear. Thanks very much.
Operator: Thank you. Our next question comes from the line of Ioannis Masvoulas with Morgan Stanley. Your line is now open.
Ioannis Masvoulas: Yes. Thank you for taking the follow-up question. Just going back to the project sequencing. With the RIGI bill, you have a deadline there by July 2026. You probably start spending money there sometime in 2027 in terms of development CapEx. But at the same time, you’re talking about QGIP [ph] and Saúva being two interesting growth options that probably need a bit more time to mature. So how should we think about the sequencing? Does Josemaria come first and then the other two options at a later stage? Is there potential to develop some of the projects in parallel, because there’s an element of financing, but there is also an element of project execution that you might be tied up in Argentina as compared to the other projects. I’m interested to hear your perspective here.
Jack Lundin: Thanks, Ioannis. So, obviously, the Vicuña Argentina Phase 1 development is still yet to be defined and therefore the schedule and capital requirement for Lundin Mining will -- still yet to be fully established. We’re running the near-mine, smaller in scale but meaningful growth opportunities in parallel. And of course, in terms of capital allocation, we want to make sure that we can stack growth sequentially for Lundin Mining. So with the Candelaria underground expansion with Saúva, running those in parallel and seeing those as probably more near-term opportunities, and then the bigger project with the Vicuña Argentina, which will really level up the company in terms of adding a lot of production to our profile. So we run all in parallel and believe that we’ve got a strong balance sheet that will be able to facilitate growth with all these different levers.
Ioannis Masvoulas: Thanks again. Thank you.
Operator: Thank you. Our next question comes from the line of Matt Greene with Goldman Sachs. Your line is now open.
Matt Greene: Hi. Good morning, everyone. I just have one question, perhaps it’s not too material, but you had a busy quarter. I just wanted to ask just about the Caserones labor agreements. We’ve seen a few of these taking place across other assets in Chile. And I guess the bonus component comes through as a one-off hit in your accounts. Has this been captured in the September quarter and is it also capturing your union guidance for the year? And then I guess into next year, are there any further union labor negotiations coming up across the group?
Teitur Poulsen: Yeah. Well, I can take one part of it, and then Juan Andres can take the second. The one-off bonus payment of around $6 million was fully expensed in the third quarter. And in terms of our guidance, we do not include potential bonus arrangements in our guidance, since it’s hard to predict where we land with all of those. Also, commercially, it could compromise us, so we leave it completely out of our guidance.
Juan Andres Morel: On your second question, Matt, in Caserones, we have three unions. We closed the first negotiation in the first quarter, the second union, as we mentioned before, in August. Right now, we’re starting the negotiation with the third union, which we expect to close that negotiation before the year ends.
Matt Greene: Okay. That’s great. Thanks. And the third union, what percentage of the workforce is that and I guess just across Candelaria, any negotiations into next year?
Juan Andres Morel: No. This is just Caserones. This is the third union. It’s a group that represents mainly the supervisors, so it’s approximately 250, 300 people in that group. And in the case of Candelaria, we signed the collective bargain agreement in early 2023. Those agreements should last for three years, so we should probably be starting that in 2026.
Matt Greene: That’s very clear. Thanks very much.
Operator: Thank you.
Jack Lundin: Thanks, Matt.
Operator: This concludes the question-and-answer session. I would now like to turn it back to Jack for closing remarks.
Jack Lundin: As always, thank you everybody for the interest and for the good questions and we had a strong quarter in Q3 and we’re looking to follow that up in Q4 and really continue on trend to meet our revised guidance here. Both copper and zinc, we’ve got a good line of sight to maintaining and getting to our budget guidelines. Thank you.
Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.
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