Hudbay Minerals Inc

NYSE:HBM

Earnings Call Transcript 2020-Q4

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hudbay Minerals Inc. Fourth Quarter and Full Year 2020 Results and Annual Guidance Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, February 19, 2021, at 9:00 a.m. Eastern Time. I will now turn the conference over to Candace Brûlé, Director of Investor Relations. Please go ahead.

[Candace Brûlé, Director of Investor Relations]

Thank you, operator. Good morning, and welcome to Hudbay's 2020 Fourth Quarter Results Conference Call. Hudbay's financial results were issued yesterday and are available on our website at www.hudbay.com. A corresponding PowerPoint presentation is available, and we encourage you to refer to it during this call. Our presenter today is Peter Kukielski, Hudbay's President and Chief Executive Officer. Accompanying Peter for the Q&A portion of the call will be Steve Douglas, our Senior Vice President and Chief Financial Officer; Cashel Marr, our Senior Vice President and Chief Operating Officer; and Eugene Lei, our Senior Vice President, Corporate Development and Strategy. Please note that comments made on today's call may contain forward-looking information, and this information by its nature is subject to risks and uncertainties, and as such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the company's relevant filings on SEDAR and EDGAR. These documents are also available on our website. As a reminder, all amounts discussed on today's call are in U.S. dollars unless otherwise noted. And now I'll pass the call over to Peter Kukielski. Peter?

[Peter Gerald Jan Kukielski, President, CEO & Director]

Thank you, Candace. Good morning, everyone, and thanks for joining us. I know it's been a long week for you all. So we at Hudbay are specially appreciative of you all joining us for this call. I hope that everybody is staying safe and healthy as we approach the anniversary of the pandemic. We continue to focus on the safety of our employees and stakeholders, and we believe that our diligence in screening, testing and workplace protocol has been effective in achieving our objective of being a safe employer and neighbor, and we will continue to adapt our site-specific measures to conform to the regional health authorities latest guidelines. In this presentation today, I'll touch on our corporate achievements and challenges in 2020, followed by an overview of our production and cost outlook as we execute our key strategic objectives for 2021. 2020 was an extraordinary year. While it brought many unforeseen challenges, we faced these, we persevered and we achieved production and unit cost guidance while advancing our growth initiatives. In March, we announced the second phase of our Snow Lake gold strategy, which saw a 35% increase in our Snow Lake gold reserves, a 41% increase in the life of mine gold production at Lalor and increased the annual gold production at Lalor to over 150,000 ounces at lowest quartile cash costs and sustaining cash costs. In May, we funded the New Britannia mill refurbishment project with a timely gold prepay transaction. We've advanced the project to 73% completion to date. We also identified the potential to produce gold from the New Britannia mill earlier than expected in 2021 through the installation of modular flotation cells at the gold plant. We upgraded the NI 43-101 resource estimate at the 1901 Deposit and increased the size of the base metal resources while defining a new gold rich inferred resource. From an operating perspective, we experienced an unfortunate incident in October with the 777 mine hoist rope and skip. The team quickly remedied the problem and the repair activities were completed well ahead of the estimated schedule and budget. Despite the 777 production interruption, our Manitoba operations exceeded the top end of our 2020 copper production guidance range, and refined zinc metal production was higher than it has been in over 10 years. We were extremely pleased with the productivity at our Snow Lake operations as the Lalor mine and Stall Concentrator both achieved record quarterly and annual production during the year.In Peru, we signed the Pampacancha surface rights agreement with the community of Chilloroya in February of 2020, after which we initiated the Consulta Previa process and discussions with individual land users. However, with the onset of the pandemic in March, the Peruvian government declared a national state of emergency. This halted the Pampacancha processes until later in the year once meetings were able to be held virtually or in-person while adhering to social distancing protocols. We were pleased to finally complete the Consulta Previa process at the end of the year with strong community support, which led to the receipt of the final mining permit for Pampacancha in early 2021. Limited site predevelopment activities have commenced. Discussions with the one remaining land user family are ongoing, and we expect the initial mining of the deposit will commence in the second quarter of 2021. Following the government's declaration of a state of emergency, Constancia operations were temporarily suspended for 8 weeks from March until May. The mine completed a quick and efficient ramp up to full production, while operating under increased COVID-19 measures of extensive quarantining and testing of workers prior to coming to site. In September, Constancia became the first mine to obtain the SAFEGUARD Certification from Bureau Veritas in Peru for compliance with all of the protocols from its COVID-19 surveillance plan after an exhaustive audits of the mine policies and procedures. During the third quarter, we announced follow-up drilling results on our Constancia North target, which intersected porphyry and skarn mineralization north of the Constancia pit, and the mineralization remains open to the north. The encouraging results will be incorporated into our annual reserve and resource update for Constancia, which will be released at the end of March. In 2020, we advanced the exploration programs at Quehuincha North, where we recently commenced drilling and at the Llaguen property in Northern Peru where we receive all required permits to begin drilling this year. We also advanced several other strategic initiatives across the organization. Our teams have done an outstanding job of implementing COVID-19 protocols in all of our operations. Their focus on achieving strong results, despite changing the way they work, has been quite remarkable. In Arizona, we advanced the appeals process for Rosemont with the filing of our initial briefs in June, followed by final briefs in November in conjunction with the filings of supportive briefs by the federal government. In the second half of the year, we commenced an exploration drill program on our wholly owned land near Rosemont in an historic copper mining district called Helvetia. We also continued to consolidate lands near our Mason project in Nevada and advanced work in preparation for a preliminary economic study for Mason. We solidified our management team with my confirmation as CEO earlier in the year and the appointment of Steve Douglas as CFO in June. In September, we completed the refinancing of our 2023 senior unsecured notes, which pushed out the maturity to 2029 and lowered the interest rate by over 1%. And last but not least, we maintained ongoing dialogue with our surrounding communities in Peru and Manitoba to provide pandemic relief support where we could. Turning to Slide 4. Fourth quarter consolidated copper production increased by 7% from the third quarter of 2020, primarily as a result of higher mill throughput and recoveries at Constancia and higher copper grades and recoveries in Manitoba. Consolidated gold production increased by 14% compared to the third quarter due to higher grades at Lalor and higher recoveries at the Stall mill. Zinc production contained in concentrate declined quarter-over-quarter as a result of the reduced output from the 777 mine. However, refined zinc metal production increased from the third quarter as we continued to process available zinc concentrate inventories at the zinc plant while the 777 shaft was being repaired. The strong copper, gold and silver production in the quarter offset the lower zinc production, resulting in relatively no change in copper equivalent production compared to last quarter. Consolidated cash cost declined from the third quarter levels due to higher copper production and higher by-product revenue, partially offset by higher operating costs. Consolidated all-in sustaining cash cost remains relatively unchanged from the third quarter. Operating cash flow before change in noncash working capital was $86 million during the fourth quarter, reflecting a slight increase from the third quarter due to higher realized copper and zinc prices and working capital changes. This also led to significantly improved adjusted net loss and adjusted EBITDA results in the fourth quarter. Adjusted net loss was $0.06 per share and adjusted EBITDA was $107 million. For the full year 2020, we met the guidance ranges for all of our metals. Copper production was lower year-over-year as a result of lower grades at Constancia and the impact of the 8-week temporary production interruption. However, consolidated gold production increased by 9% over 2019 levels as significantly higher gold production from Manitoba more than offset lower production in Peru. This allowed us to capitalize on higher gold prices this year as we saw a 24% increase in Manitoba's gold sales volumes in 2020 compared with 2019. We exited the year with $439 million in cash and equivalents, which positions us well to pursue our strategic growth investments in 2021. On Slide 5, you will find a summary of our Peru operating results. Our Constancia team delivered strong performance this year while operating in a challenging social and political environment. During the quarter, production of copper, gold and silver were higher than the third quarter of 2020 as a result of the ramp-up to full production after the temporary suspension of operations. Full year 2020 production levels were lower than 2019 due to lower grades, in line with mine plan and the production interruption in the second quarter. The mine achieved excellent operational efficiencies during the quarter with a 10% increase in ore mined compared to the third quarter. Ore milled was also higher than the third quarter as a result of a fourth quarter plant maintenance shutdown that was deferred to January 2021. Recoveries of copper, gold and silver were all higher than the third quarter due to ongoing recovery optimization efforts and actively managing the characteristics of the ore feed. Unit operating costs in the fourth quarter were higher than the third quarter, primarily as a result of higher mining costs, but full year combined unit operating costs were in line with 2019 levels. Peru's cash cost was lower than the previous quarter due to higher by-product credits and higher copper production. Sustaining cash cost increased quarter-over-quarter, primarily due to capitalized exploration related to option payments for property surrounding Constancia in the fourth quarter. Year-over-year cash costs and sustaining cash costs increased as a result of lower production due to the temporary mine interruption during the second quarter and lower grades as we progressed through the mine plan. As I mentioned previously, we achieved our production and unit cost guidance ranges for Peru in 2020. Now moving to the next slide on Manitoba. We were pleased with the business unit's response to the 777 shaft incident. The business continuity plan relocated employees and equipment from 777 to Lalor and utilized Lalor's ramp to truck additional ore to surface from the upper parts of the mine at a rate of approximately 650 tonne per day. This allowed Lalor to achieve record quarterly production, averaging over 5,000 tonnes per day in the fourth quarter. Lalor continued to produce at a higher tonnage rate through the month of December, mainly due to ongoing continuous improvement initiatives. As a result of these efforts, together with higher head grades and recoveries, production of copper and gold production was higher than the previous quarter. We continue to see strong performance from the Stall concentrator with record throughput of over 4,000 tonnes per day achieved in the fourth quarter and approximately 3,870 tonnes per day on an annual basis. Full year ore processed at Stall increased by 9% as a result of ongoing continuous improvement initiatives and higher ore availability from the Lalor mine. Units operating costs in the fourth quarter increased by 11% compared to the third quarter, but remained within the annual guidance range, despite the 777 production interruption. Manitoba's cash cost and sustaining cash cost per pound of copper produced continued to benefit from higher by-product credits. As I mentioned previously, Manitoba exceeded the top end of our copper production guidance range and met all other production and unit cost guidance for 2020. Turning to Slide 7. While 2021 continues to be a year of execution and delivery for Hudbay, our achievements in 2020 have positioned us well to deliver many key objectives this year. Our 2021 objectives are: to focus on operational efficiencies and maintain our low cost of production to continue to generate positive cash flow and strong returns on invested capital; to execute development and commence mining activities at the high-grade Pampacancha satellite deposit, further enhancing Constancia's production and cost profile; to deliver the refurbishment of the New Britannia gold mill to significantly increase gold production from Lalor, completing the second phase of the Snow Lake gold strategy; to continue to progress the third phase of our Snow Lake gold strategy to further increase annual production scale by advancing studies to optimize recoveries, throughput, resource conversion and exploration; to advance the appeals process and alternative options to unlock value at Rosemont; to maintain Constancia's industry-leading efficiency metrics by identifying areas of upside through continuous improvement initiatives at the mill and ongoing near mine exploration; to drill regional copper exploration targets near Constancia in Northern Peru and at Rosemont, while continuing to advance exploration programs in the Snow Lake region, Peru and Nevada; to support our workforce, their families and the communities in which we operate through continuing to make health and safety a priority and providing ongoing COVID-19 support in line with our ESG principles; and the last objective is to evaluate exploration, organic growth and acquisition opportunities that meet our stringent strategic criteria and allocate capital to pursue those opportunities that create sustainable value for the company and our stakeholders. Moving to the subject of guidance. In 2021, we forecast consolidated copper production to increase by 7% compared to 2020 production, primarily as a result of higher expected copper production in Peru. We expect consolidated gold production in 2021 to increase by 62% year-over-year due to higher gold production in both Manitoba and Peru. In Manitoba, we expect gold production to increase by 40% in 2021 due to the planned early start-up of the New Britannia mill. In Peru, we expect gold production to be more than triple that in 2020 as we begin to see the benefits from the higher grades at the Pampacancha satellite deposit. We expect zinc production to decline year-over-year as a result of prioritizing the mining of the gold rich zones at Lalor in connection with the early start-up of the New Britannia mill, which will result in mining less of the zinc-rich base metal zones at Lalor. Peru's 2021 production guidance assumes mining of Pampacancha will begin in the second quarter with the initial phase of lower copper grades, but higher gold grades expected to continue for the balance of the year before higher copper grades are forecast to enter the mine plan in 2022. Manitoba's 2021 production guidance contemplates an increase in Lalor's mine throughput to 4,650 tonnes per day from the previous 4,500 tonnes per day as we expect the recent trend of stronger production from the mine to continue. We plan to publish updated mine plans for our Constancia and Snow Lake operations with our annual mineral reserve and resource update at the end of March 2021. Given the pending mine plan updates, we will issue our updated 3-year production outlook in conjunction with the release of the updated mine plans. We expect the new Constancia mine plan to reflect an increase in copper and gold production from 2022 to 2025 as the higher grades from the Pampacancha deposit enter the mine plan. This is expected to offset the lost copper production from the 777 closure in mid-2022 and enable a steady state in our consolidated copper production. It will also incorporate new reserves from the Constancia North property, which will extend the Constancia pit. We expect the new Snow Lake mine plan to reflect an increase in Lalor's mine production rate beyond 4,650 tonnes per day and incorporate the results of the 1901 pre-feasibility study and the Stall mill recovery improvement study. Now turning to annual cost guidance on Slide 9. We expect total capital expenditures to decline by 11% year-over-year, primarily due to lower expected gross spending in Peru in 2021. Total planned sustaining capital expenditures are expected to increase from 2020 levels, primarily due to the deferral of heavy civil works and capitalized stripping expenditures in Peru from 2020 into 2021. A tailings dam raise is underway at Constancia and the associated heavy civil works accounts for a significant portion of the 2021 sustaining costs in Peru. Also, a portion of the Pampacancha heavy civil works has been reclassified from growth to sustaining capital expenditures in 2021. We expect Peru sustaining capital expenditures to begin to decline in 2022. Manitoba growth capital of $75 million includes approximately $70 million for the remaining spend on the New Britannia mill refurbishment project and approximately $5 million for the construction of a new long-term camp facility in Snow Lake. The increase in Manitoba's growth capital spending includes approximately $20 million in New Britannia project expenditures deferred from 2020 into 2021 and approximately $13 million in additional project costs as a result of the completion of a definitive estimate that incorporates project scope additions and COVID-19-related costs. Peru growth capital spending of $5 million includes a portion of the Pampacancha project development expenditures that was deferred from 2020, but excludes the costs associated with completing the remaining individual land user agreement due to the ongoing nature of the negotiations. A significant portion of the total land user agreements cost was completed last year. We expect total exploration expenditures in 2021 to be higher than in 2020 as we plan to conduct additional drilling in Peru and Arizona. In Peru, we are drilling the Quehuincha North skarn target property located approximately 10 kilometers north of Constancia. We also plan to start drilling the Llaguen greenfield project located near the city of Trujillo in Northern Peru after the rainy season is complete. In Manitoba, we are conducting a winter drill program focused on expanding the 1901 deposit and testing drill targets identified between 1901 and the Lalor mine. And in Arizona, we continue to drill in the Helvetia copper region following up on interesting intersections, and we will provide further details once we receive all of the assay results. We expect unit operating costs in 2021 to be modestly higher than in 2020, with the inclusion of the New Britannia mill and higher input costs in Peru. Hudbay introduced consolidated cash cost and sustaining cash cost guidance in 2021. We expect consolidated cash cost per pound of copper produced, net of by-product credits, to slightly increase from 2020 levels due to the expected increase in unit costs, partially offset by expected higher copper production and higher by-product credits. We expect consolidated sustaining cash costs to be consistent with 2020 as lower sustaining capital expenditures are expected to offset the increase in cash costs. The last topic I'll touch on is the execution of our growth initiatives. We continue to make significant progress at the New Britannia refurbishment project, as seen on Slide 10. The project continues to track ahead of the original schedule with overall project progress at approximately 73% complete. Construction of the new copper flotation building continues to advance as planned. Construction of the pipeline between the New Britannia and Stall mills has been completed. Total project spending in the New Britannia refurbishment project is forecast to be approximately $13 million higher than budget, as I mentioned earlier. As the project nears completion, we have a higher classification of the project capital estimate. The project scope has been adjusted to incorporate changes to the Stall tailings pipeline configuration due to processing considerations in addition to the implemented scope changes related to the installation of temporary modular copper flotation cells to achieve early production at the gold plant. Also, as you can imagine, the COVID-19 pandemic has given rise to some additional costs associated with remote project management and pandemic safety protocols. Refurbishment activities at the gold plant continue to remain ahead of the original schedule with commissioning expected to be completed in mid-2021. Ramp-up and first production at the gold plant is expected early in the third quarter of 2021. Copper flotation building construction activities are on track for commissioning and ramp up during the fourth quarter of 2021. Operational readiness activities in support of the early start-up of New Britannia are on track with the underground development rates in gold rich lenses 25 and 27 at Lalor proceeding ahead of plan. In addition to delivering on the New Britannia mill refurbishment project and the development and mining of Pampacancha, there are other strategic growth initiatives we expect to execute this year. In Snow Lake, we continue to advance Phase III of our gold strategy. As I mentioned, we will update our mine plan at the end of March, and we believe this new mine plan will optimize our Snow Lake milling capacity with an expected higher production rate at Lalor, improved recoveries at the Stall mill and the incorporation of the 1901 Deposit into the operations. Our focus will be on implementing these mine plan enhancements while continuing to examine the opportunity to expand the New Britannia mill capacity beyond the currently planned 1,500 tonnes in the future. We have various exploration programs underway, including our drilling activities in Peru and Arizona that I mentioned earlier. And we continue to advance exploration agreement discussions with the community of Uchucarcco, on the Maria Reyna and Caballito properties north of Constancia. Maria Reyna is a prospective copper skarn-porphyry target and Caballito is a past-producing copper oxide mine, both of which are located within 10 kilometers north of Constancia. We also expect to be finalizing our work on the Mason project preliminary economic study, which is expected to be published this year. We believe we have several exciting optimization, expansion and exploration opportunities that will be studied and advanced in 2021, creating many growth catalysts for the company this year. We look forward to delivering on those growth catalysts, while executing our high-return investment opportunities as we increase cash flows and create value for all of our shareholders. And with that, we are pleased to take your questions.

[Operator]

[Operator Instructions] Our first question comes from Orest Wowkodaw of Scotiabank.

[Orest Wowkodaw]

Peter, obviously, you got a lot of growth initiatives ahead of you here. Can you give us a bit of color on what this Constancia North deposit could do to the mine plan? Is it substantially higher grade? And I'm also curious if your -- if this new mine plan that will come out will include a mill expansion at Constancia? Or is that more likely to come later?

[Peter Gerald Jan Kukielski, President, CEO & Director]

Thanks very much for the question. Look, we're currently completing the work on Constancia North, but we do expect to incorporate it into our reserves at Constancia, which will extend the pit, as I said. We'll provide more details with the annual reserves and resource updates at the end of March. To your question with respect to mill, no, we are not currently planning within our mine plan for early expansion to the mill. Cashel, any additional color you'd like to provide to that?

[Cashel Aran Meagher, Senior VP & COO]

It always -- thanks, Peter. And it always remains a future option to us, and it's work we're working on. But this current mine plan was developed to update what's happening at Constancia and to incorporate the Constancia Norte discovery over the last couple of years.

[Peter Gerald Jan Kukielski, President, CEO & Director]

Does that answer your question, Orest?

[Orest Wowkodaw]

Well, just curious if you can give us a sense of how much better grade is the North deposit versus the main? Is it just slightly better or materially better?

[Peter Gerald Jan Kukielski, President, CEO & Director]

I would say, Orest, it's slightly better. It certainly is better than the main body. It's not as good as Pampacancha.

[Orest Wowkodaw]

Okay. And is the idea to sequence that concurrently with Pampacancha?

[Peter Gerald Jan Kukielski, President, CEO & Director]

Cashel?

[Cashel Aran Meagher, Senior VP & COO]

Yes. The idea is to incorporate it the best way optimally with an NPV optimization process. And so we run several iterations of the mine to come up with the optimum value, and we expect that some of that material will move earlier into the mine plan versus holding it for later.

[Orest Wowkodaw]

Okay. And then just finally, I mean, to me, it would seem like a mill expansion at Constancia would make a ton of sense, given the lower grade profile of the main pit. What's holding you back there in terms of moving that project forward? Is it a permitting issue? Or just curious why that's not being fast tracked.

[Cashel Aran Meagher, Senior VP & COO]

Yes, I think you nailed it. It's about the permits and the permitting process. So that's ongoing, and we sequenced the permit with the process to get to different mining sequences. And so the latest one is with the agreement on Consulta Previa, we're able to close the permit and all the permits required to mine at Pampacancha. And so the next permit iteration we would work on would be including something like an expansion at Constancia.

[Operator]

Our next question comes from Greg Barnes of TD Securities.

[Greg Barnes, Managing Director and Head of Mining Research]

In the MD&A or in the press release last night, there was a comment about steady-state production, particularly of copper in the '22 to 2025 range. Peter, is that something in the plus 100,000 to 115,000 tonnes a year of copper x or even before you've included these new mine plans in the profile?

[Peter Gerald Jan Kukielski, President, CEO & Director]

Yes, that's correct, Greg.

[Greg Barnes, Managing Director and Head of Mining Research]

And how long do you think you can sustain that level of production?

[Peter Gerald Jan Kukielski, President, CEO & Director]

I would say through to the completion -- the depletion of Pampacancha. And...

[Greg Barnes, Managing Director and Head of Mining Research]

Okay. 2025, '26?

[Peter Gerald Jan Kukielski, President, CEO & Director]

Yes, roughly that. And then you get some additional kick from Constancia North potentially, as Cashel mentioned.

[Greg Barnes, Managing Director and Head of Mining Research]

Okay. Now on cost pressures, you have some upward cost pressures -- or some upward revisions to costs for this year, but we're getting mixed messages from the various companies about whether they're getting cost pressures or not getting cost pressures. I just want to nail down and get some commentary from you on what you're seeing? Or what you're experiencing on the cost side in this environment?

[Cashel Aran Meagher, Senior VP & COO]

Yes. I think, Greg -- Cashel here. I think there is -- definitely on our base cost, there is -- and there are some pressures, and we've seen them sort of sustainably creeping in. And they're not in the 1% or 2%, but they're not in the 10%. So they're somewhere in between. But I think we'll have real clarity on what those are and what we foresee them to be with these 2 mine plans coming out at near the end of March, and that's Lalor and Constancia. And so there'll be lots of clarity on it then.

[Greg Barnes, Managing Director and Head of Mining Research]

Okay. And finally, Peter, I appreciate all of the talk about the growth initiatives you have and the things you're doing. You've been through a big phase of capital investment. But what about shareholder returns? And when do you think you'll be in a position to start talking meaningfully about the dividend and taking that higher?

[Peter Gerald Jan Kukielski, President, CEO & Director]

Greg, I mean, shareholder returns, obviously, is a key element of capital allocation. It's something that we think about all of the time, and we are singularly focused on delivering what we have to so that we can enter into that phase where we actually deliver sustainable shareholder returns. But Steve, do you want to comment on that further?

[Steven James Douglas, Senior VP & CFO]

Yes. I agree wholeheartedly, Peter. And Greg, I -- look, we appreciate the need, frankly, as I've always been schooled, the dividends are cost of capital. And they should be set such that they're sustainable growing over the course of -- in the case of a cyclical over the course of a sustained cycle. I also look at where we're at in terms of our opportunity set and our development potential going forward. And I think as it stands now, probably the better use of our capital is ensuring that we've got a conservatively financed balance sheet, but also the financial horsepower to be able to pursue our expansion plans to be able to put us in a position to sustain that growing sustainable dividend over the span of time, once we get ourselves positioned in terms of getting all of our assets working as optimally as we think we can. But the question is a perfectly appropriate one. It's something, as Peter pointed out, we discuss actively every day.

[Greg Barnes, Managing Director and Head of Mining Research]

Okay. So you think you're about a year away from that?

[Steven James Douglas, Senior VP & CFO]

No, I wouldn't. Again, I look at all -- I think we look at all competing needs for capital. And depending on the outcome of the Rosemont process, depending on the outcome of our extensive exploration, we're going to have to evaluate at any given time, the opportunity set versus expanding those returns. But it's definitely -- and I know this is perhaps cold comfort, but it's more than aspirational that we want to return to the world of being a sustainable dividend payer over the cycles, but we also want to make sure we get our -- all of our asset base working in a fashion that will support them.

[Operator]

Our next question comes from Fahad Tariq of Crédit Suisse.

[Fahad Tariq, Research Analyst]

Just following up on the last question, but more related to CapEx. As you think about the 2021 guidance, maybe can you give some color on how much of the $340 million is kind of the deferred from 2020 versus maybe just higher strip, pre-stripping or stripping costs at Peru? Like I'm just trying to get a sense of -- obviously, the overall number was a bit higher than expected. I'm just trying to get a sense of how much of that is deferrals versus the actual scope of the activities have increased.

[Peter Gerald Jan Kukielski, President, CEO & Director]

Sure, Fahad, it's -- and thanks for the question. In -- so in Peru, we deferred approximately $20 million of capitalized stripping from 2020 into 2021 because of the pause in mining activity during the pandemic. We also, of course, moved some capital associated with Pampacancha into 2021. And then at New Britannia, quite a bit of our -- I think it was approximately $20 million of capital was moved from 2020 into 2021. So those are the primary areas of movement from 2020 into 2021, and the rest is largely consistent with what we had before. So we had telegraphed the tailings work that was going to be done in Peru previously. For example, we had telegraphed the tailings work that was being done in Manitoba, but those are the key elements of what has been deferred.

[Fahad Tariq, Research Analyst]

Okay. And just -- that's helpful. And a quick follow-up on 2020, that was obviously the capital -- the CapEx was ahead of guidance. Now is that -- most of that is chalked up to the land user agreements. Is that a fair assumption?

[Peter Gerald Jan Kukielski, President, CEO & Director]

That is a fair assumption.

[Fahad Tariq, Research Analyst]

Okay. And then just lastly on that then. You mentioned, there is obviously a few land user agreements left for 2021, but most were completed in 2020. So should we assume just like a little bit higher versus the CapEx guide just to account for that? Would that be a fair assumption as well?

[Peter Gerald Jan Kukielski, President, CEO & Director]

I would say that you -- it will not be material. So we have one remaining negotiation with one family left to conclude, and we remain optimistic that, that will be included in time to allow us to start mining activities in the second quarter. I would mention that, that last negotiation -- the last negotiation is always -- is last because it's the most complicated, but we are a little bit frustrated as is the community of Chilloroya that it's taken so long. But we do believe that we're in the final stretches of concluding it now, and we do also think that the amount that it will entail will not be material.

[Operator]

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

[Jackie Przybylowski, Analyst]

I wanted to switch gears and talk about Manitoba for a minute. I know with the 777 accident last year, you were sort of reshuffling things a little bit and maybe give you an opportunity to test out some of the limits at Lalor. I see that you've raised the guidance for 2021 to mine 4,650 rather than the 4,500 run rate that you were previously assuming. Is there room to move that further? With 777 closing, does the Flin Flon mill become an option that you could factor into the plan? Ramp access, would that be part of the plan as well? I know this is all probably coming out in March, but can you give us an idea sort of big picture of what the opportunities are? And maybe what your strategy might look like 2, 3, 4 years down the road?

[Peter Gerald Jan Kukielski, President, CEO & Director]

Yes, sure. Happy to do that, Jackie. Thanks for the question. We've seen outstanding productivity at the Lalor mine, where we averaged over 4,900 tonnes per day over the last couple of months. And that's been the result of several initiatives taken in 2020, including a bunch of things that we've talked about before, the new Lalor garage, the Mobilaris Mining Intelligence technology system that allows us to get real-time look at the operating -- the operation and to optimize safety. But more than that, with the addition of people or the movement of people and equipment from 777 to Lalor during the shaft outage at 777, we were able to test the entitlement at Lalor. And we expect that we can probably achieve an additional 650 tonnes per day at the ramp at Lalor, which previously we've not done before. So I think that provides you with a sense of what might be possible. Cashel, would you comment any further on that? Or...

[Cashel Aran Meagher, Senior VP & COO]

Well, all I'd add is that, obviously, we have the installed capacity to treat that material after it comes up the ramp and the shaft that -- in Snow Lake itself, we don't need to keep obviously the Flin Flon mill open. Stall itself last year, as Peter said in his text, was over 3,800 tonnes a day. And I think recently, we achieved over 4,000 tonnes a day there. And the design capacity for New Brit is 1,500 tonnes a day. And I'd remind people that quite often when we refurbished and/or we built some of these new processing facilities, quite often, in the end, we exceed that throughput capacity that is in the design, like we did at Constancia. So with that, we're over 6,000 tonnes a day capacity. And like Peter said, we're currently hoisting over or close to 5,000 tonnes a day at Lalor. So with an extra 500 or 600 of the ramp, we start getting what is the future of Lalor. And I think we'll have some clarity for that at the end of March.

[Jackie Przybylowski, Analyst]

That's great. And maybe just a follow-up question on Manitoba. The guidance that you gave last night, for 2021 at Manitoba. If I'm comparing that with the guidance that you gave around this time last year, it looks like your zinc production for this year is lower than you had previously expected, and maybe the precious metals are higher. You've broken it out a little differently before. But if I use the same conversion ratio, looks like your precious metals are higher. Is this a function of maybe just changing the mine plan? Are you accessing a different part of the Lalor ore body in 2021 than what you had previously planned? Or what's driving those changes?

[Cashel Aran Meagher, Senior VP & COO]

Yes. I think what it is, it's a preparation. The Manitoba team is actually stockpiling some of our pretest ore out of Zones 25 and 27, which are our gold zone and our copper-gold zone. Also, there's been a focus to prepare those zones and mine those zones more intensely to take advantage of the higher grade. And in any sort of NPV optimization, you're looking for the value of ore and the margin on the value of ore rather than the metal itself. And so with these optimizations, what we see is we're seeing that value more in the gold end of it. We'll continue to mine zinc, but obviously, the Lalor zinc grade is declining as the mine ages, and we took advantage, obviously, of the zinc upfront because the zinc was in the shallower part of the mine in the first part we access, and we access that higher grade first. So we're doing the same with the gold now in late 2021. And again, with the mine plan that we will publish in March, it will give more clarity to that NPV optimization.

[Operator]

Our next question comes from Dalton Baretto of Canaccord.

[Dalton Baretto, Analyst]

Peter, sticking with Manitoba and probably, a bigger picture question for you. While you were speaking copper went up to $4 a pound, and gold's in the 1,700s now. And you're just a few months away from the new mine plan as well as the completion of New Brit. How are you thinking about that business now, just in the context of your portfolio?

[Peter Gerald Jan Kukielski, President, CEO & Director]

Dalton, we are loving it. It doesn't change our view with respect to how we're focusing on the asset. So as I've said consistently over the last few quarters, we are in delivery mode right now, and we are singularly focused on getting New Brit refurbishment up and running so that we can deliver those gold ounces as well as enhanced copper recoveries as well with what we're talking about with the Stall mill enhancements. So once we've completed this work, and we've done all of this optimization work through the rest of the year, then I think we can pause and we can think of what it might mean. But to some of the questions that you've heard before, we really, really want to accelerate cash flows in this company and take advantage of the current environment so that we can actually start pursuing other initiatives and returning cash to our shareholders. So again, as I've said before, no apologies for cash flows. We think this business is a great business. We think that there is a lot of potential to be exposed through continuing with our optimization efforts and performance improvement efforts in Manitoba. And at some time, we'll pause, and we'll figure what that all means to us, but we are on a rip right now to try to deliver, and we're not getting defocused by what the world might be or what it might mean later on.

[Dalton Baretto, Analyst]

Okay. Great. And then just maybe speaking of some of these other initiatives. So on Rosemont, you've got a decision now coming sometime in H2 and fingers crossed for you guys. But what happens if it's not successful? What do you do then? And how fast can you move on some of these alternative options?

[Peter Gerald Jan Kukielski, President, CEO & Director]

That's a great question. So look, as I've always said, we have -- we continue to remain focused on the appeals process as our primary area of focus, but at the same time, we do continue to pursue alternatives. What I can say is that I am convinced that we will build Rosemont in one way or another. So while we wait for the decision to be rendered, we continue to investigate other opportunities. We continue to look at expanding our resource base, but I think let's wait for that decision, and then we'll have a much clearer picture. But we will -- I believe we will develop Rosemont.

[Dalton Baretto, Analyst]

Okay. Great. And then just maybe one final one from me. With regards to the expired CBAs and particularly, in Peru. Just with the run-in the copper price and an election coming on April 11, and just given what happened with Candelaria last year, are you at all concerned?

[Peter Gerald Jan Kukielski, President, CEO & Director]

Dalton, no, we're not concerned in short. But the reason why I say so is that in Manitoba, we haven't had a strike in 20 years. We have a good relationship with our employees, and we continue to -- or we have had a strike -- I think we have one small strike in 20 years, but we have a great relationship with our employees. We understand what the issues are. We are in dialogue with them. We don't believe that this will end up in an interruption. And in Peru, the same thing, we are in discussion with our employees. There are a couple of elements that remain to be resolved. But at the end of the day, I don't think that it will result in an interruption. So short answer to your question is that while we remain focused on it and we are -- of course, dialogue with our employees is incredibly important, we're not concerned about interruptions.

[Operator]

Our next question comes from Stefan Ioannou of Cormark Securities.

[Stefan Ioannou, Analyst of Institutional Equity Research]

Just curious, shifting gears to the exploration. Just on the exploration, in particular North -- regional exploration north of Constancia right now that's now underway. If I remember correctly, there was a pretty compelling geophysical anomaly there. Can you just maybe comment like on how big the drill program is there to start with? And is it -- can you remind me, is it sort of a near-surface target? Or is it something that may be a bit deeper?

[Peter Gerald Jan Kukielski, President, CEO & Director]

Yes. So I'll give you a few comments, and then I'll let Cashel expand a little bit. But -- so we only have one drilling program underway at present, which is on the Quehuincha North property. With respect to Maria Reyna and Caballito, we are negotiating with the community of Uchucarcco in order to get surface rights to allow us to start drilling. And then we have to go through the permitting process, including Consulta Previa process, which would deliver the permits required. Our assessment under the current law regime is that it will be unlikely that we will start drilling before the end of this year or early next year on those targets, but we are continuing to drill at -- we are drilling at Quehuincha North, and we expect to be able to talk -- speak to some of those results in the quarters ahead of us. Now with respect to the depth of mineralization, Cashel, do you want to comment on that?

[Cashel Aran Meagher, Senior VP & COO]

Yes. All of what we're targeting is similar to Constancia and Pampacancha. It's all shallow targets generated from VTEM geological mapping and ground geophysics. Quehuincha North, although it's not our #1 target as we speak about Caballito or Maria Reyna, it is a very good target, and we're drilling there currently. So that's a great sign for us. We got started early despite the rainy season here now. With that, too, we do have a permit to drill on another prospect in Northern Peru that we're quite excited about. It's near the community of a city of 1 million people, about 3 hours away on the mid coast of Peru, Trujillo. The property is called Llaguen. So we're quite excited at the end of this rainy season to get started there with some follow-up advanced exploration. There is quite a number of drill holes already there, indicating mineral endowment. And then I would also mention our other exploration efforts in Manitoba to follow-up on some targets like the 1901 between Lalor and 1901 itself. And of course, we're drilling currently in the Helvetia historical copper mining district that saw mining continuous from the late 1800s to the mid-1900s. We're following up. I think there is some 20 sort of pick and shovel underground operations. And currently, we have 3 drills turning there. And I think we're going to go up with a couple more drills, and we're excited to talk about what we see there geologically. And when we get fulsome report on all our assays, both the total copper and the sequential copper assays, we're excited to report those along in the timeline with our 2 mine plans at Constancia and Lalor.

[Stefan Ioannou, Analyst of Institutional Equity Research]

Okay. Okay. Great. And maybe just on Manitoba, is all the exploration there then focused right now around the epicenter of sort of Lalor and 1901? Or is there any sort of broader regional stuff looking maybe under that sort of Paleozoic cover and whatnot?

[Cashel Aran Meagher, Senior VP & COO]

Yes. Right now, the focus is the Chisel basin itself to really understand what is the endowment available to us to optimize. Now the 2 plants we have, the base metal and the gold plant that are within truckable distance to Snow Lake. So that's the principal focus right now in Manitoba. And as I said, the other focus are some of the quite compelling targets we have north of Constancia at Llaguen, and of course, adjacent to north to our Rosemont deposit [ on our private land ].

[Operator]

[Operator Instructions] Our next question comes from John Tumazos of John Tumazos Research.

[John Charles Tumazos, President and Chief Executive Officer]

Congratulations on all the progress. With the good copper price, are there any mitigations you might do, given the historic volatility of the copper price of the company, such as buying puts or raising equity to repay debt? Secondly, what is your minimum size threshold for pursuing new projects? We know there is Rosemont and Mason in the various zones in Manitoba, but there might be some medium-sized copper projects that look a lot more robust with the copper price rebound?

[Steven James Douglas, Senior VP & CFO]

John, thanks for your question. It's Steve here. I think your question is 2 sides of the same one. You kind of -- and I don't want to -- if I misread, please tell me. But I think your first question is, do we have any intent to perhaps hedge to take advantage of this robust copper environment. And our traditional answer has been no. We like the exposure to the spot market. It's been rewarding thus far. And I think our shareholders appreciate the fact that we have not taken that joy out of the copper price. So I think that policy remains in place. We may strategically look at it now and again on a short-term basis to try to -- we typically do hedge quotational period pricing. But outside of that, we're not looking at this point of time at hedging the long term. Had we -- if we're in the midst of building an asset like a Rosemont or something that had financing conditions that maintain certain cash flow levels, we might entertain that. But then again, that will be short-term and really looked at from the development perspective. And as it relates to raising equity to repay debt, I think, obviously, the prices are robust. But we -- as I've said on many occasions, we're in the process today of transforming 2 assets through the acquisition of Pampacancha pit, and obviously, through the refocusing of the Lalor and Snow Lake camp on the gold assets and the New Brit refurbishment, both of those are going to generate substantial capital. And at this point, I think raising equity would -- while it may be advantageous in terms of paying down debt, it's -- I'm not sure our shareholders see it as the way, when we're in a world of returning in a very short order to generating significant free cash flow as a consequence of the pricing and the changes we're making to the portfolio. So there aren't any terms in the near -- there aren't any thoughts in the near term where we'd issue equity.

[Peter Gerald Jan Kukielski, President, CEO & Director]

And John, I should...

[John Charles Tumazos, President and Chief Executive Officer]

What's your minimum size threshold?

[Peter Gerald Jan Kukielski, President, CEO & Director]

We -- John, we don't really consider things in terms of minimum size. Because if you look at some of the projects that we are undertaking at our brownfield sites, we have no shame in investing $20 million for a 1-year payback, for example. So we don't think in terms of minimum size thresholds. In bigger picture, when we think in terms of our production profile, then I think the minimum threshold you're referring to might be more appropriate, but again, it's a matter of returns. If we could put into production quickly and easily at 20,000 tonne a year copper producer, we would consider it, provided the returns are right. Obviously, we have the capacity to develop much larger assets. So we look what's optimal in the context of good for the organization and what our technical and execution skills might permit. So there is no hard and fast answer, but over time, for sure, we would like to be expanding our copper production profile.

[Operator]

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

[Candace Brûlé, Director of Investor Relations]

Thank you, operator, and thank you, everyone, for participating today. Please feel free to reach out to our Investor Relations team, if you have any further questions. This concludes our call, and you can disconnect your lines now.