Hudbay Minerals Inc

NYSE:HBM

Earnings Call Analysis

Focus on Delivery and Optimizing Key Projects

As permits are awaited, there is an emphasis on accelerating partnerships and feasibility for key projects like Copper World, with team expansions planned later in the year to support pre-construction stages. The company is prioritizing delivery, with strategic exploratory efforts in Manitoba and immediate aims to access properties for exploration in Maria Reyna and Caballito. Although the 2022 technical report for Copper Mountain had optimistic life-of-mine assumptions, which were not endorsed by the company, they are steering towards a model that aligns well with historical data and plans to potentially scale up from a 45,000 tonne per day capacity as they fine-tune their operations to handle 200,000 to 250,000 tonnes of total material movement daily by December. Furthermore, the prefeasibility studies are of a definitive level, with room for partners to make value-adding tweaks, but any substantive JV processes will commence once permitting is secured, to maximize project value.

Enhanced Recovery and Production at Lalor and New Britannia Mills Boosts Performance

The company has seen substantial progress in mineral recovery and production, particularly at two of its milling operations. The Lalor production averaged 4,000 tonnes per day with higher metal grades in the third quarter, and gold recovery improved significantly at the Stall mill from 60% to approximately 68%. Meanwhile, the New Britannia mill maintained high production despite processing higher copper head grades, averaging 1,600 tonnes per day. These improvements have been attributed to optimization processes focused on milling circuits, which are expected to continue benefiting cash costs, notably decreasing Manitoba's gold cash costs to $670 per ounce, a 39% reduction compared to the previous quarter.

Copper Mountain Mine Integration and Cost Improvements

The acquisition of the Copper Mountain mine has yielded promising results with the company producing 9,300 tonnes of copper during their first full quarter of ownership. Optimization initiatives have begun, projecting a decrease in combined unit operating costs over time. Copper Mountain's copper recoveries improved to 81%, and substantial savings are anticipated through realized corporate synergies of $9 million and an expected $20 million in operational efficiencies over three years. For 2023, the Copper Mountain mine's production guidance is approximately 19,500 tonnes of copper at an average cash cost of $2.65 per pound.

Strategic Focus on Debt Reduction and Capital Efficiency

The company has placed a strong emphasis on fiscal prudence by reducing net debt and improving their net debt to EBITDA ratio. They achieved an adjusted EBITDA of $191 million, a 135% increase from the second quarter, driving strong free cash flow generation of over $110 million. Post-quarter end, additional repayments of $45 million were made, and the company lowered its total capital expenditures for 2023 by approximately $30 million, indicating disciplined capital allocation and an ongoing commitment to deleveraging.

Promising Pre-Feasibility Results for Copper World and Flin Flon's Potential

The company has unveiled the results of the Phase 1 pre-feasibility study at Copper World, which forecasts a robust 20-year mine life with attractive economics and a net present value of $1.1 billion. Meanwhile, a potential exploration partnership with Marubeni could reinvigorate the legendary Flin Flon region, offering exciting prospects for new resource discoveries and sustainable treatment of historical tailings.

Pivotal Exploration Initiatives and Future Strategy

Exploration remains central to the company's strategy, with considerable enthusiasm for potential findings in Manitoba and plans to acquire the Maria Reyna and Caballito properties. A forward-looking approach towards advancing the Copper World project towards a sanctioning decision and possible acquisition of new operating assets displays the company's dedication to growth, value creation, and strategic improvement.

Copper at the Forefront of Future Growth

Copper continues to be the company's focus metal, with favorable supply-demand dynamics anticipated from global decarbonization efforts. The company's diversified production base, with meaningful copper production at competitive costs, sets Hudbay positively for future growth. Their unique positioning with a strong pipeline for organic copper growth underlines their potential to benefit from increases in copper prices.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hudbay Third Quarter 2023 Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, November 9th at 9 a.m. Eastern Time.I will now turn the conference over to Candace Brule, Vice President, Investor Relations. Please go ahead.

[Candace Brule, executive]

Thank you, operator. Good morning and welcome to Hudbay's 2023 third quarter results conference call. Hudbay's financial results were issued yesterday and are available on our website at www.hudbay.com. A corresponding PowerPoint presentation is available in the Investor Event section of our website 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 Eugene Lei, our Chief Financial Officer and Andre Lauzon, our Chief Operating Officer.Please note that comments made on today's call may contain forward-looking information and this information by its nature is subject to risks and uncertainties and as such actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the company's relevant filings on SEDAR+ and EDGAR. These documents are also available on our website. As a reminder, all amounts discussed on today's call are in U.S. dollars, unless otherwise noted and now I'll pass the call over to Peter Kukielski.

[Peter Gerald Kukielski, executive]

Thank you, Candace. Good morning, everyone and thanks for joining us in today's presentation. We'll be taking you through our many record achievements in the third quarter, touching on the operating and financial performance of the business and provide insight into recent strategic initiatives.In the third quarter, we delivered on our plan for significantly higher production, revenue and cash flow, marking an inflection point as we generate strong returns from our recent brownfield and growth investments across the business. In Peru, operations delivered on plan, with anticipated higher copper production and gold production, driven by the higher grades at Pampacancha following a period of higher stripping activities completed in the second quarter. This resulted in the mine's lowest quarterly cash costs on record.In Manitoba, mill recoveries increased meaningfully compared to the prior period, as we optimized the circuits at the Stall Mill and the New Britannia Mill. We saw higher gold and copper grades at the Lalor Mine, which led to strong gold production and lower cash costs during the quarter. We also successfully completed the Rockcliff acquisition in September, which together with the acquisition of the Cook Lake Claims significantly expands our land holding in the Snow Lake area to provide potential future feed sources for the Stall and New Britannia Mills.And in British Columbia, our Copper Mountain Mine had its first full quarter of operations under the Hudbay umbrella. Over the past few months, we've been focused on completing integration activities, advancing our plans for ramping up the mining fleet and planning for mill stability and reliability improvement initiatives. With the strong operating performance in the third quarter, we have reaffirmed our 2023 full-year production and cost guidance for our Peru and Manitoba operations.We've also updated our consolidated 2023 guidance to incorporate Copper Mountain's contribution since the acquisition. As we enter this period of meaningful cash flow generation, we remain disciplined with capital spending and focused on advancing our deleveraging efforts. We have a resilient operating platform that will allow us to prudently advance and unlock value from our leading organic pipeline of brownfield expansion and greenfield exploration and development opportunities.The third quarter was an important milestone as it represents a step change in a diversified cash flows of the business. We nearly doubled our copper equivalent production in the third quarter compared to the second quarter as shown on Slide 4. Copper represented 65% of our consolidated revenues in the quarter, with a total of approximately 42,000 tonnes of copper produced and 93% increase from last quarter.Consolidated gold production was a record 101,000 ounces in the quarter, representing a 107% increase from the prior quarter. Similarly, silver and zinc production increased by 74% and 18% respectively, compared to the prior quarter. The significant increase in production of all metals was driven by meaningfully higher recoveries in Peru and Manitoba, mining of the high copper and gold grade zones at the Pampacancho deposit, higher gold and copper grade zones at Lalor and incremental production from Copper Mountain Mine.The significant increase in production of all metals resulted in strong financial performance in the third quarter as summarized on Slide 5. Consolidated cash costs for the quarter were $1.10 per pound, a meaningful improvement from the second quarter. This was a result of the strong copper and gold production in Peru and Manitoba, which more than offset the higher operating costs associated with now having 3 operations.Similarly, sustaining cash costs decreased to $1.89 per pound in the quarter as the lower cash costs were only partially offset by higher levels of sustaining capital during the quarter. Both cash cost measures are expected to continue to be strong in the fourth quarter, with higher expected copper production and continued strong contributions from precious metal by-product credits. Consolidated all in sustaining cash costs were $2.04 per pound in the third quarter, significantly lower than the second quarter.Third quarter operating cash flow before change in non-cash working capital was $182 million and after deducting sustaining capital expenditures in cash lease and community payments, we generated over $110 million in free cash flow this quarter. The increase in cash flow was primarily the result of higher copper sales volumes in line with the higher production level seen this quarter.Revenue, earnings and operating cash flow would have further benefited from the sale of approximately 20,000 ounces of consolidated gold production that was unsold at the end of the third quarter and is expected to be sold in the fourth quarter. Our available liquidity increased to $540 million this quarter, as our cash position increased to $245 million and we now have $294 million available under our revolving credit facilities.Moving to Slide 6, as I mentioned earlier, our Peru operations saw a meaningful increase in production from the first half of 2023 as we had planned. During the third quarter, the higher grades of Pampacancha resulted in 29,000 tonnes of copper produced and 41,000 ounces of gold produced. In addition to the higher grades this quarter, we also benefited from higher recoveries and higher throughput at our Constancia mill.Production levels in the fourth quarter are expected to continue to benefit from higher grades, remaining on track to achieve our full year production guidance range. Total ore mined increased by 18% in the third quarter, compared to the second quarter in line with the mine plan. Ore mined from Pampacancha increased to about 6 million tonnes at an average grade of 0.53% copper and 0.3 grams per tonne of gold.Ore milled was 9% higher this quarter because of a scheduled plant maintenance shutdown that occurred last quarter. Milled ore grades increased to 0.43% copper and 0.21 grams per tonne of gold as expected. These higher recoveries were in line with our metallurgical models as recoveries benefited from the completion of the recovery uplift program in the second quarter, as well as higher head grades and lower contaminants.Combined unit operating costs for the quarter were 13% lower than the second quarter due to lower milling costs and higher throughput. Peru's cash costs were at record low of $0.83 compared to $2.14 per pound in the second quarter. This 61% improvement was a result of higher gold by-product credits, high copper production and lower milling costs. This solid performance and meaningful decline in cash costs is expected to continue to benefit from strong production in the fourth quarter and we continue to expect our Peru operations to achieve the cash cost guidance range for 2023.Sustaining cash costs in Peru were $1.51 per pound in the third quarter, a 51% improvement from the prior quarter. Total annual sustaining capital expenditures in Peru are expected to be $10 million lower than the original 2023 guidance levels, primarily the result of lower capitalized stripping costs.Our Manitoba operations also saw strong production performance in the third quarter as summarized on Slide 7. Manitoba produced 56,000 ounces of gold, [ 3,600 ] tonnes of copper, 10,000 tonnes of zinc and 265,000 ounces of silver. Gold production was 59% higher than the prior quarter as a result of mining higher grade gold zones, higher recoveries at the New Britannia and Stall Mills and the recovery of secondary gold products at New Britannia.Improvements completed at New Britannia late in the quarter were able to recover secondary gold products and ensure gold is reporting to dore as designed. With the recent recovery improvements at the New Britannia and Stall Mills and higher grades from Lalor in the third quarter, the company expects to achieve full year production guidance for all metals. As disclosed in our second quarter results, gold production is expected to trend towards the lower end of the guidance ranges, while copper and zinc production are expected to trend to the upper end of the guidance ranges.We continue to advance several key initiatives to support higher production levels, reduce dilution during the mining cycle, and continue to improve metal recoveries at the Snow Lake operations. At Lalor, we are enhancing the quality of ore production and minimizing dilution through improved blast designs, loading procedures and effective grade control practices.At the Snow Lake mills, we completed changes to optimize the circuits, resulting in increased gold, copper and silver recoveries. We are also exploring the potential to enhance the tailings deposition method at the Anderson facility with the transition from subaqueous to subaerial tailing storage. This could provide a more efficient use of impoundment space, address seasonal operational challenges and deferred capital expenditures for dam-raised construction to future years.Lalor production averaged 4,000 tonnes per day during the third quarter, slightly lower than the prior quarter. However, we mined higher grades this quarter in all metals, with gold and copper grades roughly 25% higher than the second quarter. Stall mill processed 7% more ore in the third quarter, as we drew down base metal ore stockpile that had built up in the second quarter. After commissioning the first phase of the Stall mill recovery improvement project in the second quarter, the third quarter was focused on optimizing circuits to achieve targeted recoveries by reducing primary ground size, refining the flotation circuit balance and mass pull and reagent selection.These proved highly effective, resulting in notably higher recoveries for copper, gold and silver, with the Stall mill achieving its targeted gold recovery levels of approximately 68% in the third quarter compared to 60% gold recovery in the second quarter. The New Britannia mill consistently achieved elevated production, averaging 1,600 tonnes per day despite processing significantly higher copper head grades that can impact throughput due to copper flotation limitation.We continue to advance the process debottlenecking initiatives at New Britannia as we pursue higher throughput targets to align with the increased gold ore production from Lalor. Combined units operating costs slightly decreased in the third quarter compared to the prior quarter, reflecting the higher mill throughput. Manitoba's gold cash costs were $670 per ounce, 39% lower than the second quarter due to higher gold production driven by improved grades and recoveries.Cash costs are expected to continue to benefit from increasing gold production from higher grade stopes and throughput increases at Lalor, as well as continued strong recoveries. As a result, we expect to achieve the 2023 guidance range for cash cost in Manitoba.Gold sustaining cash costs were $939 per ounce, a decrease from the second quarter based on the same reasons affecting cash costs. Total annual sustaining capital expenditures in Manitoba are expected to be $15 million lower than the original 2023 guidance levels, primarily a result of lower capital development costs realized at Lalor, as the team focuses on cost efficiencies.Slide 8 highlights the results from our first full quarter of owning the Copper Mountain mine. We produced [ 9,300 ] tonnes of copper, [ 4,600 ] ounces of gold and 101,000 ounces of silver during the third quarter. Our efforts to stabilize the operation are underway.Total ore mined during the third quarter was 3.8 million tonnes, which was in line with our expectations. We commenced a fleet production ramp-up plan to capture the full value of existing idle capital equipment at the Copper Mountain site. Additionally, a new electric shovel was commissioned in September, which will reduce carbon intensity by displacing some of the existing diesel shovel production.The mill processed a total of 3.2 million tonnes of ore during the quarter, with mill availability averaging 83.5%. The milled copper grades were 0.36%, in line with our expectations for the quarter. Copper recoveries were 81% in the third quarter, an increase compared to 79% that was previously reported by Copper Mountain for the full-year 2022. Mill throughput was impacted by excessive coarse material bypassing the comminution circuit and restricting flow through the tailings discharge line, causing high levels of unplanned downtime. This issue was rectified in August and we continue to focus on increasing mill availability.Combined unit operating costs in BC were CAD24.80 per ton milled. Combined unit operating costs per ton milled are expected to decrease over time as we execute the stabilization and optimization initiatives at Copper Mountain. BC cash costs were $2.67 per pound and sustaining cash costs were $3.39 per pound in the third quarter. These cash costs have improved compared to the full-year 2022 cash costs previously reported by Copper Mountain.We have issued Copper Mountain 2023 production and cost guidance for the period since June the 20th. We expect to produce approximately [ 19,500 ] tonnes of copper at average cash cost of approximately $2.65 per pound, based on the midpoint of the guidance range. The new Copper Mountain guidance has also been incorporated into our consolidated 2023 guidance ranges. The production and cash cost guidance ranges for our other business units has otherwise been reaffirmed and remains unchanged. We also expect capital expenditures at Copper Mountain to total approximately $35 million in 2023, including sustaining capital and capitalized stripping costs.Since the acquisition in June, we've been focused on advancing our plans to stabilize operations at Copper Mountain. As seen on Slide 9, we've been able to realize annual corporate synergies of $9 million and we're on track to exceed the $10 million target for corporate synergies. We are also on track to achieve the $20 million in targeted annual operational efficiencies to be achieved over the course of 3 years, as stated at the time of announcement.As I mentioned, we've commenced the fleet ramp up plan in the mine, which entails a ramp up from 14 trucks to 26 trucks by the end of the year. Once complete, we expect to see a more than 30% increase in tonnes moved in 2023 compared to 2022. We're also planning a campaign of accelerated stripping over the next 2 to 3 years to enable access to higher grade ore and to mitigate the substantially reduced stripping undertaken by Copper Mountain over the 4 years prior to acquisition.Additionally, as part of our near-term stabilization plans, we will be applying our mill efficiency initiatives from the Constancia mill to the Copper Mountain mill in an effort to continue to improve concentrate quality and copper recoveries. The key focus area for us is the implementation of improved maintenance management systems as part of our focus on increasing mill availability.Further details on our stabilization plans will be provided in a new technical report, which is expected to be released in the fourth quarter, which will include an updated mine plan, annual production and cost estimates that reflect our stabilization and optimization initiatives, as well as updated mineral reserve and resource estimates.As we delivered on our plan for strong production growth and free cash flow generation in the third quarter, we remain disciplined with capital allocation and deleveraging activities. We achieved adjusted EBITDA of $191 million in the quarter, the highest quarterly level over the last 5 years and a 135% increase from the second quarter. As mentioned earlier, we generated over $110 million of free cash flow in the quarter. A significant driver of this increase was a solid revenue generation from our diversified production base.While copper revenues increased by 62% quarter-over-quarter, our gold revenues similarly increased by 69% as a result of producing over 100,000 ounces this quarter. Copper remains our core metal of focus, but we enjoy the diversified revenue and cash flows our gold exposure offers, with gold prices typically having counter cyclical benefits to copper. This gold diversification is an important aspect of our prudent financial strategy that helps to ensure consistent cash flow generation and uniquely positions us versus our peers.During the quarter, we reduced net debt to $1.13 billion. The $58 million decline in net debt, together with higher levels of adjusted EBITDA in the quarter, improved our net debt to EBITDA ratio compared to the second quarter, thereby improving our credit facility availability.Subsequent to quarter end, we continued our deleveraging efforts with an additional $40 million repayment on our credit facilities, as well as a $5 million principal repayment on the Copper Mountain bonds. We also recommenced the deliveries under our gold prepay agreement to reduce the repayment liability.Additionally, we've been working towards delivering annual discretionary spending reductions with lower growth capital and exploration expenditures, which we're on track to achieve in 2023. Total capital expenditures for 2023 are now expected to be approximately $30 million lower than previous guidance levels, a further reduction from the $15 million of savings announced in the second quarter. This represents a 10% reduction in total capital expenditures.From today's comments, Hudbay is well positioned at an inflection point for continued cash flow generation and we expect to continue to take prudent measures to position us to deliver our deleveraging targets. During the third quarter, we published the results from our pre-feasibility study on Phase 1 at Copper World, which is summarized on Slide 11. Phase 1 is a standalone operation requiring state and local permits only. Over the past 12 months, the team completed extensive technical work on Phase 1 to produce this enhanced and de-risked Phase 1 plan for Copper World.Phase 1 has a mine life of 20 years, which is 4 years longer than the Phase 1 mine life that was presented in the preliminary economic assessment published in June of 2022. The Phase 1 pre-feasibility study demonstrates attractive economics with a $1.1 billion net present value and a 19% internal rate of return using the $3.75 copper price. Phase 1 has a simplified project design as a traditional open pit truck and shovel operation with conventional to flotation to produce copper concentrate and molybdenum concentrate.In the study, the processing facilities are expanded to include a concentrate leach facility in year 5, producing copper cathode and silver gold dore. Phase 1 contemplates average annual copper production of 85,000 tonnes over the 20-year mine life at average cash costs of $1.47 and sustaining cash costs of $1.81 per pound of copper. A variable cut off grade strategy allows for higher mill head grades in the first 10 years, which increases annual production to approximately 92,000 tonnes of copper at average cash costs and sustaining cash costs of $1.53 and $1.95 per pound of copper respectively.Phase 1 has an anticipated initial growth capital expenditure of $1.3 billion. The project contributes meaningful annual EBITDA with $372 million on average over the mine life and more than $400 million on average over the first 10 years at a copper price of $3.75. With the pre-feasibility study, we updated the mineral resource estimates for the project, increasing the global measured and indicated mineral resources to 1.2 billion tonnes at 0.42% copper grades, confirming the significant upside at Copper World with an intended Phase 2 expansion of mining activities on to federal land to further enhance the project economics and extend the mine life well beyond 20 years. We expect to receive our 2 outstanding state permits in mid-2024. The opportunity to sanction Copper World is not expected until 2025 based on current estimated time lines.Moving to Slide 12, we entered into a framework for a potential exploration partnership in Flin Flon with Marubeni in July. This exploration partnership would allow us to couple our operational and exploration expertise with Marubeni's balance sheet strength to test our large Flin Flon land package and potentially revive our dormant Flin Flon processing facilities.We've discovered and operated 29 mines in Hudbay's nearly 100-year history in Manitoba and we have the potential to continue that success with this renewed focus on exploration in Flin Flon. We are also examining the potential to reprocess Flin Flon tailings, where in excess of 100 million tonnes of tailings have been deposited for over 90 years. We completed confirmatory drilling in 2022, which covered about 2/3 of the facility and indicated higher zinc, copper and silver grades than predicted from historical mill records, while confirming the historical gold grade.We are advancing metallurgical test work and evaluating metallurgical technologies. This included the recent signing of a test working agreement with Cobalt Blue Holdings Limited to assess the processing viability of the Flin Flon tailings using Cobalt Blue's proprietary processing technology that fracavos copper, zinc, gold and silver, while converting sulfides into stable and benign sulfur. In the Snow Lake region, we continue to compile results from ongoing infill drilling at Lalor that will be incorporated in our next annual mineral resource and reserve estimates update in March 2024.Looking at Slide 13, we also entered into agreements to significantly consolidate our land holdings in Snow Lake through several transactions, increasing our holdings by more than 250% in the region. We intend to explore these claims with the aim of finding a new anchor deposit to extend the life of Hudbay's Snow Lake operations beyond 2038. One of these transactions was the completion of the Rockcliff acquisition during the quarter. This not only expands our land holdings in the Snow Lake area, but it also consolidates Hudbay's ownership of the Talbot copper gold deposit.This transaction has the potential to further extend mine life at our Snow Lake operations, as well as offers us additional exploration properties to provide further optionality for future feed sources for our store and New Britannia mills. We completed the acquisition of the Cook Lake properties from Glencore in late June. The Cook Lake properties are located within 10 kilometers of the Lalor mine and have the potential to host a new discovery at depth.We received data regarding approximately 60,000 meters of historical drilling that was completed over 10 years ago at a fraction of Lalor's current known debt. The mineralization indicates that there is a potential for new deposits on the same favorable mineralized horizons as many known deposits in the area, including the Lalor, 1901 and Chisel deposits. The Cook Lake properties are untested by modern deep geophysics, which was the discovery method for the Lalor mine.Concluding on Slide 14, we believe that copper has the best long-term supply-demand fundamentals in the sector as global carbon mine supply will be unable to meet demand from global decarbonization initiatives. Hudbay is uniquely positioned to benefit from the strong outlook for copper with attractive copper production growth and significant long-term optionality for investors through our leading organic growth pipeline.Hudbay offers meaningful copper production at first quartile cash costs. We delivered on our plan for higher copper production and lower cash costs in the third quarter and we provide the highest near-term free cash flow yields versus peers. Our goal diversification is part of this unique positioning, while also offering countercyclical benefits. And lastly, we have significant long-term upside through our leading copper growth pipeline, offering the highest net asset value sensitivity to copper prices in our peer group.And with that, we're pleased to take your questions.

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And our first question today comes from the line of Ralph Profiti, Eight Capital.

[Ralph Profiti, analyst]

Peter and perhaps Andre, I just had a question on copper recoveries at Copper Mountain hitting 81% in Q3 and it's been intimated that those design rates are hovering around sort of 84%, 85% as the goal. Just wondering how much of that is a function of expected higher copper grades? Or are there adjustments still to come in the processing circuit? And when perhaps we can see that 84%, 85%, is that sort of a first half '24 phenomenon or more allocated towards the second half?

[Peter Gerald Kukielski, executive]

I'm actually going to ask Andre to address the question for you as he will do much fuller than I will be able to.

[Andre Lauzon, executive]

The recoveries have improved significantly since we've been able to integrate with the operation, there's still more to go. Most of the challenges to date are not challenges the grade improvements are tied to technical and grind size issues. And so right now, at the current throughput, we've had to balance, call it, grain size to liberate the recoveries. Over the next year, so into 2024, we plan on optimizing our throughput in terms of a stable throughput. So stability of the plant is key for us to achieve really good recoveries up in the 85% range, that's going to happen over probably 18 months or so in that range as we put in new maintenance practices. We're looking at optimizing some of the reagents and balancing feeds between the SAG mill and the ball mills that currently are a bit of a bottleneck. We can hit as high as 45,000 tonnes per day. But until we get those technical solutions in place, what happens is that we send to course of a feed through and our cyclones can't keep up and we plug lines and the like.And so your question, if I go back to it, was around -- is it related to grade, I'd say the answer is no. So it's a combination of technical solutions that we're working on in the short-term, like over into next year. And then the maintenance reliability initiatives that Peter mentioned in the -- earlier in the call, those will stabilize the plant and those will over the next 18 months or so and those will get us to that level in that 85% range.

[Ralph Profiti, analyst]

Peter and perhaps, Eugene, it's about $45 million in lower CapEx guidance over the course of 2023. How much of this is sort of deferrals and rephasing into 2024? Or should we consider the bulk of these reductions truer to greater efficiencies, optimization synergies?

[Peter Gerald Kukielski, executive]

I think both, but Eugene?

[Chi-Yen Lei, executive]

Yes. The answer is both and it's $30 million in capital savings from the original guidance and they're across the board actually. So some of the capital savings are in Manitoba and those are from sustaining capital and that's actually from more efficient mining and less development. It's about a combination of both in Peru in terms of a bit more efficiency and some deferrals. And then there's the $5 million in Arizona, that's -- that is deferral to do work that we don't need until we have the permits and the partner in hand. So it's a combination of focusing on deleveraging to allow us to invest in the pipeline, in the most prudent way and enhance our operating cash flow platform.

[Operator]

Your next question comes from the line of Jackie Przybylowski from BMO Capital Markets.

[Jackie Przybylowski, analyst]

Maybe if I can ask just maybe a quick one first. I've seen some headlines that 1 of your former employees Javier Toro, has moved over to Solaris. I was wondering if you could talk a little bit about any impact that might have on your operations?

[Peter Gerald Kukielski, executive]

I think our industry is characterized by mobility of high-quality people. And I mean, Javier has been with us for a long time. He worked on the original Constancia project. He's been instrumental in advancing Copper World with us. But it's time for him to take on a new challenge. One of the good thing that happens when you get mobility of people is it creates opportunity for others in the organization to move on up. And so we've got a very, very strong bench strength behind Javier in the company that enables us just to move other people up and along. So while we started to see Javier go and we expect him to probably return one of these days. In the meanwhile, we're going to give some of our other younger folks some real opportunities to move on up. So we don't anticipate that there'll be any impact on the company at all.

[Jackie Przybylowski, analyst]

Maybe another question. I don't know if this is for Andre, but at Snow Lake, looks like you had really terrific success with the recovery improvement project at Stall. I was wondering if you could talk a little bit about your thinking for any future optimizations or improvements in Snow Lake or what your plans are maybe going forward there?

[Andre Lauzon, executive]

So as Peter mentioned, the exploration story is something that -- it's probably one of the most exciting things, I think that we're going to see in the coming years. It's really -- it's the first time around Lalor, where we consolidated the land package. And so we have this unique opportunity to explore it to its full potential. And so we're really excited about that possibility to either find new satellites or potentially an anchor deposit. So that's -- that's probably number 1.Number 2, we've really made some strong headway on the 1901 deposit. So we put that on pause a little bit about a year ago, the financials and the design, the plan just wasn't strong enough for us to allocate capital to it and the teams have done just an amazing job of rethinking it to where we're looking at -- at advancing some exploration drifting into next year in drilling to better optimize the project and the returns on that look much stronger now that I think it will definitely come into our plan. And that will fully optimize feed to Stall mill. At New Brit -- so, New Britannia is achieving what we always hoped it did. And now it's exceeding the throughput on a daily basis. We're seeing periods of upwards of 2,000 tonnes per day. We're in the process of permitting it up to 2,500, but right now, Rob and team are really focusing on some minor bottlenecks around some of the pumps that are little bit high maintenance that feed the tailing system, that seem to constrain us a little bit in some other maintenance activities. But the opportunity there is for us is to really increase the throughput at New Britannia, which makes -- we have a surplus of gold resource in the Snow Lake area and getting the very high 90% recoveries through New Brit just is really, really exciting.And so as well, if I -- to just a little bit lower talking about Manitoba, the team in Flin Flon areas have done some really good work around derisking that. And this is our first full year where we've since 777 and the zinc plant has closed and they've come up with some really innovative ways to reduce the cost of treatment of waters and like in where we've had significant savings. And we're working very well and Peter mentioned around the tailings opportunity and our plan is to turn that potential was perceived by some as a liability in the past to an asset and we're really excited about that in combination with the Marubeni exploration. So there's a lot of exciting things going on right across the board in Manitoba.

[Jackie Przybylowski, analyst]

That's a great list. Thanks, Andre. And maybe if I -- if you don't mind, if I can ask one last question. I know you've curtailed some of your spending at Copper world, which makes a lot of sense for the near-term. Can you give us a bit of an update on any of the project work that you might be starting next year or what the spend could look like next year, assuming you get your permits as you're expecting?

[Andre Lauzon, executive]

So there's some further optimization around the plans pending getting our permits as Eugene had mentioned previously is we'll be really accelerating, getting a partner and moving into feasibility. So, Javier and team pending the timing of those permits will be looking at building our team in Arizona to support that -- those feasibility studies and advancing it to the next stages pre-construction. So, will be -- the first steps will be ramping up the team, getting the right people in place to deliver those feasibility studies and that will probably be later in the year.

[Peter Gerald Kukielski, executive]

But the work...

[Jackie Przybylowski, analyst]

[indiscernible]

[Peter Gerald Kukielski, executive]

The work really right now is focused on supporting the permitting application process and readiness for the JV process.

[Andre Lauzon, executive]

Correct.

[Operator]

And your next question, sorry, [Operator Instructions] And your next question comes from the line of Stefan Ioannou from Cormark Securities.

[Stefan Ioannou, analyst]

Just maybe a sort of a general question that might not have a simple answer, but just kind of curious, obviously, a lot of focus on still on deleveraging and the balance sheet health and stuff. Just wondering if you can maybe comment on sort of just your strategic sort of hiarcle thinking of various opportunities, mainly how does exploration stack up against some other things like Copper World and deleveraging itself and sort of the grand scheme of how you plan to spend money over the foreseeable future?

[Peter Gerald Kukielski, executive]

I think if I step back, right now, what we're doing is all about delivery. Exploration, of course, is a key component of planning for the future. And like Andre said, we are super excited by both the scale and intensity and potential of the exploration efforts in Manitoba. We will continue to do some exploratory work associated with the Mason project through the rest of this year and into next year in order to bring that along, but those are not big dollar numbers.Outside of that, we are razor-focused on getting access to the Maria Reyna and Caballito properties to start exploring as soon as possible. And so that's a key initiative to advance that. But the spending there is more in the context of associated with the regulatory regime of getting the drilling bits in hand. But strategically, once we have those, we're going to go flat out.So exploration does comprise a big part of our strategy going forward. And as I said, I said, delivery is key. So delivery in the context of Copper Mountain, stabilizing and optimizing that is a key strategic initiative for us and advancing Copper World towards a sanctioning decision. I would also say that -- I mean, I've always said that we have a very skilled team when it comes to efficient operations and development projects. And I do continue to feel that we can create value both from operating and at least from both improving what we have, developing our project pipeline, but also adding another operating asset to our portfolio if indeed we can find one and if it's going to be accretive to our shareholders.So we continue to look for those assets, but very, very focused on delivery at that point because we think that, that is -- that will provide us with the license for the other stuff that we want to do.

[Operator]

Your next question comes from the line of Dalton Baretto from Canaccord Genuity.

[Dalton Baretto, analyst]

I wanted to start by asking about Copper Mountain. There's some language in the disclosure that suggest that your estimates around reserves will be closer to the old Jan 2019 estimate versus the September '22 and it's a considerably lower number. I'm just wondering what's driving that? Is it just the removal of the expansion? Or is there something else that's driving that?

[Peter Gerald Kukielski, executive]

I'll start with sort of a broader comment. The 2022 technical report that Copper Mountain issued was based on very optimistic assumptions on all aspects of the 2022 life of mine plan. And that's the reason why we never endorsed it. Our acquisition process was based on an internal mine developed by mine plan that was developed by us from the information made to us available to us by Copper Mountain and was more in line with the reserves and mill throughput assumptions in technical reports published by those -- by Copper Mountain prior to 2020. So we never absolutely never endorsed their 2022 plan. And as I say, the work that we did was more aligned with their prior plans.But Andre, do you want to expand on that?

[Andre Lauzon, executive]

I think you covered off quite well. The teams have used the same approach in resource modeling that we do at all of our operations, whether it's in Peru, at Costancia, where we've been mining for a number of years in our models, as you know, reconcile very, very well to our forecast and what we produce. We use the same methodology at Copper World. And so the teams have worked rigorously on database validation, generating models and we actually -- we have a model now that reconciles very, very well to the mill. Over the last couple of months, our new model is reconciled very, very close and that gives us a lot of confidence in terms of building our technical report and plans and forecast going forward, I think that something that Copper Mountain has struggled within the past was the reconciliation of their block models to the mill.And so I would say that we've applied our technologies. We haven't tried to justify the 2022 resource I think in terms of the overall, but we feel very strongly on the ones that we have to date. So there's -- in terms of the overall -- we're not planning and Peter kind of talked -- mentioned a little bit is about the endorsement of the 2022 plan. Our intention is to why we say back to the 2019 is, it's about a 45,000 tonne a day technical report and we're leaning to some -- toward something like that with some potential expansion potential, but not the 65,000 tonne a day plan that's currently that was posted in their 2022 model.

[Dalton Baretto, analyst]

And then I know the reports coming out in the next couple of weeks, but can you give us some sort of a sense on the accelerated stripping campaign just in terms of scope and what the capital implications are for next year for that mine?

[Andre Lauzon, executive]

We're still working on it, we're still working on it. But I -- with the ramp-up that we're planning to get to, like Peter said to the 26 trucks in -- by December, that throughput will be very, very close to the stripping rate that's required on an annual basis. So, we're still doing a little bit of fine-tuning, so it's a little bit premature to say exactly the amount, but it's in that range. And so like by December, we should be in the 200,000 to 250,000 tonnes a day of total material movement in that range.

[Dalton Baretto, analyst]

And then maybe if I can squeeze last one in for you, Peter or Eugene. On the Copper World JV process, where are you in that process right now? And do you anticipate the project design changing at all in the feasibility study once you have a partner in place?

[Peter Gerald Kukielski, executive]

Not really. Remember that the prefeas -- it was a good prefeasibility study based on in many cases sort of a definitive feasibility level engineering. So I don't anticipate changes during the feasibility study process. But at the same time, we would like to afford a partner the ability to tweak elements of the design if needed or if appropriate or if it creates value. Where we are right now is that we feel that the process is best left to kick off around about the time that we have certainty with respect to the issue of our permits. Because once we have the permits in hand, of course, the project becomes very, very significantly derisked and offers us the opportunity to probably get more value out of a potential partner.That said, we're moving towards -- we're sort of doing quite a lot of work with potential partners to get people up to speed so that when we kick a process of as we get the permits, it becomes a much more efficient process.

[Operator]

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

[Candace Brule, executive]

Thank you, operator and thank you, everyone for joining us today. If you have any further questions, please reach out to our Investor Relations team. Thank you and have a great day.

[Operator]

Ladies and gentlemen, this concludes the conference call for today. You can now disconnect your lines.