Capstone Copper Corp

TSX:CS

Earnings Call Analysis

Capstone Copper Achieves Key Milestones and Updated Production Guidance

In Q3 2024, Capstone Copper produced 47,500 tonnes of copper at C1 cash costs of $2.83 per pound, achieving commercial production at the Mantoverde Development Project. Revised 2024 C1 cash cost guidance is now $2.60 to $2.80 per pound due to ramp-ups taking longer than expected. With adjusted EBITDA nearly doubling year-over-year to $120.8 million, the company anticipates strong Q4 performance. Future plans include the Mantoverde Optimized project, expected to boost production by 20,000 tonnes per year with low capital costs of $7,500 per tonne. Overall, annual production could exceed 250,000 tonnes at lower costs, emphasizing Capstone's robust growth trajectory.

A Strong Quarter of Production Growth

Capstone Copper showed impressive operational results in Q3 2024, achieving consolidated copper production of 47,500 tonnes, a 16% increase quarter-over-quarter. This surge is credited to the initiation of ramp-up activities at the Mantoverde Development Project (MVDP), which recently achieved commercial production. This marked an important milestone, occurring just three months after the first concentrate was produced from the plant.

Adjusted Financial Outlook with Cost Increases

Despite robust production growth, the company revised its C1 cash cost guidance upwards to a range of $2.60 to $2.80 per payable pound. This adjustment primarily arises from delayed ramp-ups at MVDP and Mantos Blancos, both of which began later than anticipated. C1 cash costs during Q3 were reported at $2.83 per pound, reflecting the impact of initial production from MVDP.

Solid Revenue and EBITDA Performance

The company reported adjusted EBITDA of $120.8 million for the quarter, nearly doubling year-over-year. The revenues were slightly affected by a 1,500-tonne difference between payable production and copper sales, amounting to an estimated $5 million to $6 million of EBITDA that was not realized. Notably, the average LME copper prices were reported at $4.18 per pound, an 8% decline from previous quarters, yet Capstone realized a higher average copper price of $4.24 per pound due to its hedging program.

Maintaining a Stable Financial Foundation

As of September 30, Capstone maintained a net debt level of $751 million, essentially unchanged from previous quarters, indicating a robust balance sheet amidst the ramp-up of production. The company has positioned itself to generate significant operating cash flows, with projections of $450 million to $500 million anticipated from MVDP at full run rates in 2025.

Leadership Transition and Future Direction

Significant leadership changes were announced, with John MacKenzie stepping down as CEO to transition to the Board Chair role. Cashel Meagher has been appointed as the new CEO, with James Whittaker as the new COO. This succession plan is designed to ensure continuity and strategic focus as the company advances its growth initiatives, particularly in the Mantoverde Optimized and Santo Domingo projects.

Innovative Projects Tackling Expansion and Sustainability

On the project front, the feasibility study for the Mantoverde Optimized project outlines a low capital expenditure of approximately $146 million, aiming to increase production capacity from 32,000 to 45,000 tonnes per day. This project is expected to enhance future production capabilities, positioning the company for long-term success in a competitive copper market. Cash costs are anticipated to be as low as $1.80 per pound in the initial years.

Strategic Future in Focus with Lower Operating Costs

Capstone aims to become a low-cost, long-life copper producer, aligning with global demand for decarbonization efforts. The anticipated cash flow generation from enhanced production at Mantoverde and ongoing cost management strategies position the company favorably with goals of reducing net debt to EBITDA ratios below 1x.

Conclusion: A Company on the Move

Capstone Copper’s Q3 2024 results underscore a transformative phase with notable production achievements and a clear strategy for future growth. The company is focused on optimizing operations while carefully managing costs and leveraging its strong financial foundation to navigate the evolving mining landscape.

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon, ladies and gentlemen, and welcome to Capstone Copper's Q3 2024 Results Conference Call. [Operator Instructions]

This call is being recorded on Thursday, October 31, 2024. I would now like to turn the conference over to Mr. Daniel Sampieri. Thank you. Please go ahead.

[Daniel Sampieri, executive]

Thank you, operator. I'd like to welcome everyone to Capstone Copper's Q3 2024 Conference Call. Please note that the news release and regulatory filings announcing Capstone Copper's 2024 third quarter financial and operational results are available on our website and on SEDAR+. If you are logged into the webcast, we will advance the slides of today's presentation, which are also available in the Investors section of our website.

I am joined today by our CEO, John MacKenzie, our President and Chief Operating Officer; Cashel Meagher, our SVP and Chief Financial Officer, Raman Randhawa, our SVP Risk, ESG and General Counsel, Wendy King, and our SVP Technical Services, Peter Amelunxen, is also available at the end of the call. Following our brief remarks, there will be an opportunity for questions.

Please note that comments made on the call today will contain forward-looking information within the meaning of applicable securities laws. This information, by its nature, is subject to risks and uncertainties, and actual results may differ materially from the views expressed today. For further information on the risks and uncertainties pertaining to our business, please see Capstone's most recent filings which are available on our website and on SEDAR+. And finally, I'll just note that all amounts we will discuss today are in U.S. dollars unless otherwise specified.

Now I'll turn the call over to John MacKenzie.

[John MacKenzie, executive]

Thank you, Daniel. Good afternoon, everyone in North America and Europe, and good morning to those dialing in from Australia. We're pleased to present our third quarter 2024 results and achievements. Starting with Slide 5.

In Q3, our operations delivered consolidated copper production of 47,500 tonnes at completed C1 cash costs of $2.83 per pound. Very importantly during the quarter, we had several major achievements at our mines in Chile. At our flagship Mantoverde Development Project, we achieved commercial production levels in September. This is a tremendous accomplishment within 3 months of producing first concentrate from the plants. We also completed our first two concentrate shipments with a copper concentrate meeting all required specifications.

Mantos Blancos, we undertook a 2-week shutdown to install the new equipments that will allow us to unlock the design capacity of the plant. Following these milestones and the Q3 results, we've noted that we expect it to finish at the low end of 2024 production guidance. We revised our C1 cash cost guidance to $2.60 to $2.80 per pound. Mainly as a consequence of the ramp-ups at Mantoverde and Mantos Blancos commencing later in the year than we had expected.

On the corporate side, our net debt was largely unchanged, $751 million as at September 30. Our balance sheet is in excellent shape as we ramp up Mantoverde ahead of our next phase of growth. During the quarter, we also provided our leader succession plan that will take effect at our AGM in May next year. The announcement followed a thorough and orderly succession process to ensure continuity of leadership and continued success of the company. It has been a privilege to serve as the Chief Executive Officer of Capstone Copper since March 2022, and I'm thrilled to be nominated to the role of Board Chair at our next AGM.

I was also very pleased to announce that Cashel will be appointed as our next CEO. I have every confidence in Cashel to lead the execution of our next stage of growth at Capstone, including our Mantoverde Optimized and Santo Domingo projects. James Whittaker will succeed Cashel as COO, and this will also allow us to flatten our organizational structure with all mine general managers reporting directly to the COO.

We also announced today that Jerrold Annett has retired after 5 years with Capstone to spend more time with his family. Jerrold has been an important contributor to Capstone's success over the past 5 years, and we thank him for all of his contributions and wish him all the best in retirement.

Turning to Slide 6 -- earlier in October, we released a feasibility study for our Mantoverde Optimized projects. MV Optimized is a capital-efficient brownfield de-bottlenecking project that will expand the existing sulfide concentrator at Mantoverde from 32,000 to 45,000 tonnes per day, leveraging the excess capacity in existing infrastructure. This project will bring on an additional 20,000 tonnes of copper per year for an initial capital of just below $150 million, implying a super low capital intensity of $7,500 per tonne -- per tonne of copper equivalent production.

This positions us to produce over 120,000 tonnes of copper per year at Mantoverde for the next 10 years with cash costs of $1.80 per pound. Importantly, when combined with the release of our updated Santo Domingo feasibility study earlier in July, we have now defined the next transformational phase of growth for Capstone, and our world-class Mantoverde, Santo Domingo districts in the Atacama region of Chile. We see ourselves producing copper by these two processing centers in this well-endowed district for many decades to come. Mantoverde and Santo Domingo are separated by only 35 kilometers, and we have identified multiple options to surface significant further value in the coming years.

And with that, I'll pass over to Raman for our financial results.

[Raman Randhawa, executive]

Thank you, John. We are now on Slide 7. In Q3, we recorded copper production of 47,500 tonnes, reflecting growth of 16% quarter-over-quarter, driven by the initial production from the ramp-up of MVDP. As a result of the ramp-up, as expected, we have started to build up some concentrate inventory and some accounts receivable, which resulted in copper sales being below payable production levels by 1,500 tonnes this quarter. That difference between payable production and sales equates to approximately $5 million to $6 million of EBITDA.

LME copper prices during the quarter averaged $4.18 per pound, down 8% compared to $4.42 per pound in [indiscernible]. Our realized copper price of $4.24 per pound was slightly above the LME average as a result of our QP hedging program. We realized strong gross margins of $1.41 per pound or 33%. C1 cash cost of $2.83 per pound, included maiden unit cost of $2.52 per pound from Mantoverde Development Project.

In September, the MVD sulfide posted cash costs were $1.83 per pound. When combined with the larger production volumes from MVDP this will drive a significant reduction in our consolidated unit cost in Q4 and beyond. As John mentioned, we have increased our consolidated C1 cash cost guidance -- for 2024 to $2.60 to $2.80 per payable pound of copper produced. The cost increase is largely driven by production volume impact by the start of the MVDP and Mantos Blancos ramp ups occurring late in the year than originally expected and the corresponding knock-on effect to our unit cost.

At Mantos Blancos, we have also experienced a higher year-to-date spend than expect driven by additional maintenance plus extra materials and labor to complete the de-bottlenecking to unlock the plant's nameplate capacity. Across the rest of the portfolio, our underlying costs have been fairly in line with our expectations.

Turning to EBITDA. Adjusted EBITDA in Q3 of $120.8 million nearly doubled year-over-year, and was down only 2% quarter-over-quarter despite the 8% decline in copper prices. Going forward, our financial results will be impacted by the achievement of commercial production at MVDP. The achievement of commercial production, there's a few items for Q4 financials which include additional finance charges being expensed versus capitalized, and the commencement of depreciation and depletion on the MVDP capitalized cost. We expect our finance expenses to increase by $25 million per quarter, which includes interest on shareholder loans. This includes both cash, finance expenses like the interest on our debt facilities and other noncash finance charges. Similarly, we expect our annualized depreciation to increase by approximately $80 million, which is mainly calculated on a unit section basis and some straight line amortization.

Moving on to Slide 8. On the left-hand side, we summarize our available liquidity, which as at September 30, 2024, was $516 million, which includes $139 million of cash and short-term investments and $377 million of undrawn amounts on our $700 million corporate revolving credit facility.

Of note, in the quarter, we commenced repayment subject finance and cost overrun facilities at Mantoverde in conjunction with the ramp-up of operations. Our net debt of $751 million is largely unchanged from the prior quarter, and we are no entering the next phase of de-leveraging with the ramp-up of MVDP to full production rates.

The chart on the right-hand side illustrates our EBITDA sensitivity at various copper prices. We are now on the cusp of the light blue bar which represents EBITDA of close to $1 billion to $1.3 billion at copper prices of $4 to $4.50 per pound MVDP at full run rate. The EBITDA generation associated with Mantoverde will enable us to focus on generating free cash flow to delever our balance sheet with a pathway to below 1x net leverage at spot copper prices. This provides a strong platform from which to advance our future growth pipeline in terms of Mantoverde Optimized and Santo Domingo.

Now I'll hand it over to Cashel for the operations review.

[Cashel Meagher, executive]

Thanks, Raman. We're on Slide 9. Pinto Valley produced 13,980 tonnes of copper to C1 cash cost of $2.92 per payable pound during Q3. Throughput averaged 45,000 tonnes per day in the quarter, which was below our expectations driven by unplanned maintenance. For the last few quarters, we had seen positive progress and higher throughput after kicking off an asset integrity program. The third quarter showed that this initiative is required to improve the reliability of the plant, and it continues to be implemented. Despite these unplanned interruptions, Pinto Valley is on track with respect to the guidance we provided at the beginning of the year.

Moving to Slide 10. In Cozamin mine delivered another solid quarter, producing 6,025 tonnes of copper at C1 cash cost of $1.82 per payable pound. Cozamin has remained very consistent despite rolling out a higher volume of cut-and-fill mining methods this year, in addition to the operation of the paste backfill plant.

Our Mantos Blancos asset is highlighted on Slide 11. Total sulfide and cathode production yielded 9,974 tonnes of copper at a C1 cash cost of $3.41 per payable pound. While production and costs were similar to what we've seen in the last couple of quarters, they do not tell the whole story of what was a very significant quarter at Mantos Blancos. In July, we concluded a 2-week shutdown to tie in key pieces of equipment that we identified were required to ensure more consistent throughput at the back-end tailings handling area of the plant.

On the right-hand side of the slide, you'll see the new surge tank and fourth, positive displacement pump. In August, the plant ramped back up. And now -- and starting from the middle of that month, we averaged over 18,000 tonnes per day, which is a significant improvement over the past few quarters. These modifications now completed are allowing increased plant utilization as designed. We expect to continue with higher output in Q4, which will increase copper production and significantly lower our unit costs.

Also of note, in Q3, recoveries improved to a more normal 82% from a low of 73% in Q2. After a short-term localized geotechnical issue in Q2, impacting the mine plan sequencing of grades and recoveries. Copper grades are also expected to improve in the fourth quarter back into the 0.8% to 0.9% range from sub 0.8% in the last 2 quarters. Overall, for the year, production and cost at Mantos Blancos are trending unfavorably relative to the guidance ranges we provided in January. However, our confidence levels at Mantos Blancos today are much higher than they have been at any point over the last 2 years and will continue to increase daily production rates through to the end of the year.

Now on to Mantoverde on Slide 12, where it was a transformational quarter. Total sulfide plus cathode production yielded 17,481 tonnes of copper, a significant increase, driven by a meaningful 8,139 tonnes from the Mantoverde Development Project. After producing first concentrate near the end of Q2 in June, we ramped up quickly and efficiently in July and achieved facility practical completion with our construction partner Ausenco. This followed the achievement of 7 days operating near nameplate capacity of 32,000 tonnes per day. This prompted a 2-week shutdown at the beginning of August.

During that time, we took over operation of the plant and all of the OEMs were on-site to provide their final sign-off on warranties for all the equipment. Post the shutdown starting in the middle of August, we again ramped up efficiently and achieved commercial production in September. Our quarterly average throughput, of course, includes the downtime and ramp-up periods, but in September, we averaged 26,200 tonnes per day. Grades reconciled well with the mine plan and block model, posting 0.71% copper in the quarter.

We were excited by the recoveries we have seen so far as well. After normalizing for work in process inventory builds, we have implied metallurgical recoveries of around 78.2% in the quarter and above 80% in August and September. Additionally, we delivered our first two concentrate shipments, which meant all required saleable specifications. This was a significant milestone. We are very proud of the accomplishments to date by the project and operating teams. Mantoverde is poised to produce more consistently and reliably through the fourth quarter.

Turning to Slide 13. But a month ago, we released the results of a feasibility study for our Mantoverde Optimized project. This is a capital-efficient and near-term brownfield growth opportunity at Capstone that leverages available excess capacity in our crushing and grinding circuits at our Mantoverde concentrator plant, providing the option to increase throughput from 32,000 to 45,000 tonnes per day plant feed at a capital efficient cost of $146 million.

On Slide 14, the plan presented for MV Optimized represents the next major growth in the evolution of our world-class Mantoverde Santa Domingo district. MV Optimized will increase production to an average of over 120,000 tonnes of copper and 40,000 ounces of gold per year over its first 10 years.

On the bottom right of the page, you can see that the study outlines an NPV at 8% discount of anywhere from $2.9 billion at $4.10 per pound copper to close to $4.5 billion on a 100% basis at just over $5 per pound copper.

Turning to Slide 15. We've highlighted some of the key differences from the new MV Optimized study relative to the last technical report release for Mantoverde Development Project. First, the mine life has been extended to 20 years, and it's important to note that it's also been done without any additional drilling. As Mantoverde hasn't seen a comprehensive exploration program since before 2019. This additional mine life and throughput is enabled by an increase in the total sulfide reserve by 67%.

With now 394 million tonnes classified as reserve. The resulting life of mine yields a slight decrease of head grade and an increase in stripping requirements. Opportunity remains, though -- opportunity remains through exploration drilling and what we at Capstone view as an excellent exploration prospectivity along the Atacama Fault for higher grades and potential mineral that can be accessed with less stripping.

And as previously mentioned, throughput is to be increased from 32,000 to 45,000 tonnes of copper per day. On the bottom of the slide, we profiled a larger production profile. Both over the first 10 years and over the extended life of mine. In the middle, we highlight the attractive cash costs with first 10 years at $1.82 per pound of copper, and life of mine cash costs around $2 per pound. The increases in sustaining and deferred stripping CapEx relative plan incorporate the large operation with per tonnes moved and higher throughput, while also being refreshed for the inflation that we have seen since the 2021 technical report was released.

Turning to Slide 16. The MVO study outlines an initial expansion cost of $146 million. This implies a very low capital intensity of $7,500 per tonne of annual copper equivalent production, and of course, compares very favorably to other projects, profiled. Santo Domingo, which is also on the slide also compares very favorably. There is no better place for us to build another mine than 35 kilometers down the road from where we just successfully completed construction at the Mantoverde Development Project.

Turning to Slide 17. Though the combined MVSD District product potential on the left-hand side, with the first 3 years of combined production averaging around 250,000 tonnes of copper at a very attractive cash cost. Over time, we plan to further augment these base case numbers with additional opportunities, including processing Santa Domingo oxides at Mantoverde continuing to explore the district to improve our understanding of the long-term potential and assessing the viability of byproduct cobalt production.

On the right, you can see the various copper occurrences identified to date in the district. We're very excited by the potential for future exploration on our own properties as well as the opportunity for other sterilized deposits to eventually become future feeds for our processing centers in the district.

Now over to Wendy King for the sustainability review.

[Wendy King, executive]

Thanks Cashel. We're now on slide 18 with a review of our sustainability highlights for Q3. At Santa Domingo we opened a community engagement office to keep the community informed and engaged on developments as project ramps up.

At Mantos Blancos, we celebrated the 20th anniversary of our partnership with the Delta UCN program. Annually, the education program is offered to nearly 500 elementary and high school students in the Antofagasta region. This year, the program has expanded to provide mental health support to more than 100 university students. We're very proud of the positive impact this collaboration has over the years on the education of the young people in the region.

Also in Chile, Capstone Copper received the 2024 Best Midsized Company of the Year Award from SONAMI, the Chile Mining Association. A key aspect of the award is the recognition for Capstone's ESG practices and community engagement. At Cozamin in Mexico, we published a biodiversity handbook. This is based on a site monitoring program where we worked with 6 biologists to gather and classify the data over 2 years. During the quarter, Cozamin also partnered with its contractors to replan 2 hectares of land with native species. And at Pinto Valley in Arizona, we replaced three diesel-fired engines with electric units, with further plans to replace two more units as part of our PV Electrification Project. This program will provide Scope 1 reductions for carbon emissions.

And with that, I'd like to pass it back to John.

[John MacKenzie, executive]

Thanks, Wendy. Turning to Slide 19. We've outlined our sector-leading growth plans and some of the additional updates within our portfolio. As can be seen, we expect MVDP at it's full run rate to bring us to a consolidated annual production level above 250,000 tonnes of copper at costs in the low $2 per pound range.

From Mantoverde Optimized and Santo Domingo projects would take us to around 400,000 tonnes of copper production per annum at even lower cash costs. We intend to proceed that Mantoverde Optimized following the receipt of a DIA amendments. We filed for the DIA permit earlier this year and expect receipts in the first half of 2025. We plan to finance this project through internally generated cash flows.

At Santo Domingo, we're progressing with the assessments of the optimal financing structure for the project. We're looking at this in a very similar manner to what we were able to achieve at Mantoverde. Included in this, we've recently commenced a process to bring in a partner at the minority level. We're also advancing discussions with respect to a project finance facility, which we see forming a part of the financing package for Santo Domingo.

Before a potential sanctioning decision at Santo Domingo, we also want to see all of our assets operating at or near full production levels and our consolidated net debt to EBITDA at below 1x. And of course, we will also be mindful of the overall macroeconomic environment. As such, we believe we will enter a sanctioning window for Santo Domingo later in the second half of 2025. Beyond these projects, with further upside across our portfolio with another low-risk brownfield expansion opportunity at Mantos Blancos. Additional flexibility in the MVSD district to unlock more copper and potentially byproduct cobalt production and the potential developments of another major copper district around our Pinto Valley mine in Arizona.

Turning to Slide 20. We highlight the time lines for some of the studies that I've mentioned and for other milestones as we execute on our growth plans. This is a significant year for Capstone. In the third quarter marked an important step in the transformation of our business with tangible delivery on our peer-leading growth. Over the past few months, our operations in Chile exhibited meaningful milestones at both our flagship Mantoverde Development Project, where we achieved commercial production and at Mantos Blancos which is now enabled to deliver its nameplate capacity.

We expect the fourth quarter to be our strongest of the year, providing a glimpse of the future Capstone with a larger production base and lower unit operating costs. At Capstone, we're now extremely well positioned to become a leading long-life and low-cost copper producer, playing an important role in supporting the world's decarbonization efforts.

With that, we're now ready to take questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Ores Wowkodaw from Scotiabank.

[Orest Wowkodaw, analyst]

And maybe I could start just by congratulating both John and Jerrold on their retirements. And congratulations to Cashel on the new role.

I wanted to focus on, obviously, the Mantoverde sulfide project. You've been operating now for a couple of months. Can you give us -- are you seeing any area of the operation, whether it's mining, crushing, griding, flotation, et cetera, that you are seeing any concerns that could limit your ability to ramp up or achieve a consistent, call it, 32,000 tonnes a day by the end of the fourth quarter? I'm just wondering if there's any area where you see some risk right now?

[John MacKenzie, executive]

Thanks for that question, and thanks for the congratulations. Although I would say my retirement is intended to remain pretty closely involved in the business. So you're going to be hearing more.

So I'll be passing this across to Cashel for a more granular response on that. But just from my perspective, I've been involved in quite a number of mine ramp-ups. I've been extremely pleased with what I'm seeing at Mantoverde to date. The equipment has been I'd say overdesigned in pretty much every area. We've been able to run the plants at rates above the design capacity for sort of many continuous days and without any bottlenecks appearing.

So obviously, there's work to be done on making sure we get ultimate sort of operational continuity and getting our operators trained up to operate the equipments well. But when we look at it from the mine, the mine is operating really well. It's -- the reconciliation between the block model and what we're actually mining is spot on.

The performance of each piece of equipment, whether it's sort of crushers or mills or flotation, I was just talking to Peter -- looks on earlier today, he was just amazed that how we haven't had any issues -- downstream with things like filtration and thickening, et cetera. Tailings dams in place, the desal plant has ramped up really nicely. So at this point, we -- certainly from my perspective, I'm really pleased with what I see.

And I'm looking at this through two lenses. One of which is our current ramp-up, and the other of which is the subsequent Mantoverde Optimized project and looking to further wind this equipment up to actually do 45,000 tonnes a day rather than 32,000 tonnes a day. And I've got to say I'm really encouraged there as well. We're not seeing anything that makes us pause in terms of the capability of the plant to ultimately get to that level.

But Cashel, can I ask you just to sort of add to that?

[Cashel Meagher, executive]

Yes, sure. So obviously, everything John said is correct, and it's very encouraging. No ramp-up goes without interruptions, and we've had interruptions. But fortunately, there've been ones we've been able to mitigate. Early on, we had a failure in a motor, but we had a spare motor. That motor is imminently the spare repaired to be delivered back soon.

We did have some constraints in our cleaner circuits, and we took a minor downtime to be able to address that by increasing pumping capacity and pipe diameters. It was actually restricting some of the grade we could put through. So now fortunately, we can put through the higher grade that Mantoverde has to offer. So I'd say they're normal issues.

And then now we're dealing with minor issues. It's optimization of reagents. It's setting control parameters for operators. It's modifying operator procedures so that they fit better with Mantoverde itself. Things like the desal plant has now been stress tested and can supply the total amount of water we require. All the sand production is going quite well at the tailings dam. So knock on wood, it's been going really well. And we think that we've been driving out the variability in the process and then this brief modification I said to the cleaners we see ourselves well capable of achieving that full nameplate production before the end of the year consistently.

[Orest Wowkodaw, analyst]

That's excellent. And with today being Halloween, can you give us an early preview of how the month of October potentially went there, just with respect to average throughput and maybe recoveries?

[John MacKenzie, executive]

Cashel, do you want to add to that?

[Cashel Meagher, executive]

Yes, I'm not going to give perfect numbers. There's still today to be complete. So -- but it's going really well. We're in the high 20s.

[Orest Wowkodaw, analyst]

And recoveries, it's going very well?

[Cashel Meagher, executive]

Yes. So recoveries are going well, too. We're -- so there was -- we had what we call the buildup. We had to build the inventory within the bedding of the thickener and the cracks and premises. We also had those issues, as I said, with the cleaners. So we actually have a storage pond on site that we've got to reprocess some concentrate. So our metallurgical recovery has been in the low 80s right now this month. And prior to that, we were just near 80. So it's going really well.

And like I said, there's some optimization on the cleaner rougher circuits, some reagent optimization and all those things are being done now. So it's nice to be able to not have to focus on throughput and to be able to focus on metallurgical characterization, so to speak, and optimize that now going forward in Q4.

[Orest Wowkodaw, analyst]

Perfect. And just another quick one, if I could. Just -- I didn't see anything in the release on CapEx guidance for this year. Is the previous number, the $470 million, is that still valid at this point? Or has that changed?

[Raman Randhawa, executive]

Yes, it's largely. Yes, sorry, John.

[John MacKenzie, executive]

Or it's largely unchanged. We had authorized a bit of exploration that we had kind of noted earlier in the year.

[Operator]

And your next question comes from the line of Ralph Profiti from Eight Capital.

[Ralph Profiti, analyst]

Just want to get a little bit more specific on recoveries, Cashel, at Mantoverde. Are you now through the in-process inventories and into the run of mine ore and just thinking about how we get from sort of 80% to the 88% design rate. And would that 88% be sort of like a year-end '24 target? Is that conceivable?

[Cashel Meagher, executive]

Yes, I think it is conceivable. In my experience, we have Peter on the line here, but I would say in my experience, there's always a sequence to ramp up. There's mechanical, there's warranty, then there's throughput, then there's optimization on recovery. And we're really near the end of the throughput. Obviously, we had the facility practical completion where we had consecutive days at nameplate throughput. Now we're working on operational controls.

But we have Peter on the line. So maybe Peter can talk to the process of getting to the desired recovery.

[Peter Amelunxen, executive]

Yes, sure. Thanks, Cashel. And just before, I'd like to echo John and Cashel's comments that I'm very happy with what I'm seeing on the performance of the plant to date, both in terms of tonnage and recovery. The recoveries of about 82 -- 80% to 82% right now are a combination of losses in the roughing circuit and then the cleaning circuit. The cleaning circuit should be running for a well-designed, well-operating plant should be somewhere around 98% and most of the losses should be in the roughing circuit.

In our case, however, because of the constraints that we had in the cleaning circuit, the operators have had to slow down the cleaning circuit, producing higher-grade concentrates and sending more copper out to the cleaner tails. And as a result, the recoveries in the cleaning circuit have generally been around about 90%, 88% to 92% in that range, much lower than what we would expect after we debottleneck that. The changes were made roughly late last week, earlier this week, we put in the new pump. So we still haven't seen the final results.

The operators are going to require some time as well to learn how to operate the circuit at the higher throughput rates. But in general, with -- what I'm trying to say is that if we were to have a recovery issue around the design, we would generally see symptoms of that in the roughing stage, and we're not seeing any of that. So the rougher recoveries are above 90%, and we have lots of residence time. We have about 34 minutes in the roughers and about 35 minutes in the cleaner scavengers. So overall, I'm very, very encouraged by what I'm seeing from the metallurgical data on a day-to-day basis.

[Ralph Profiti, analyst]

Great, Peter. And Pinto Valley, a bit of a step back in Q3, and I see in the presentation, we're now into its 50th year. If Raman wants to chime in here, how are you thinking about sort of sustaining CapEx going forward? Historically, I see a run rate sort of $50 million, $60 million per year. Just wondering as that operation ages, how we should be thinking about that part of the equation?

[John MacKenzie, executive]

Yes, Ralph, good question. I mean, well, I think what I would suggest is maybe Cashel, if you want to just start off just by introducing what we're doing in terms of the asset management framework because I think running after that, I'd ask just to speak to the actual kind of sustaining CapEx. But -- to me, it's more about actually having the rights preventative to maintain the right asset management framework in place to make sure that, that equipment operates sort of at or above design.

So maybe if I could just ask Cashel just to comment briefly on that and then skip across to Raman.

[Cashel Meagher, executive]

Yes, Ralph, what we're implementing is an asset management framework. And the reason is two of our mines have elderly infrastructure, we'll call it, whether it's sort of outdated electrical components, conduits, tiring, steel, fatigue, even down to where you sort of have pipes and pipe brackets require replacement. And what we were seeing over the last few years is at Pinto Valley, we were getting unplanned events of breakdowns of some of these structural electrical mechanical components that are critical to the throughput consistency. And so we -- when you take these unplanned events, they're really the ones that are conspiring to Pinto Valley missing targets periodically.

So we started last year. We brought in a team that's implementing at all our mine sites an asset management framework. It's got 15 components in it that address all the different components of asset integrity, asset management and maintenance, everything sort of from the procurement chain right through to inspection, repair, time to repair, all those types of systems and processes. And we've started implementing it, and we got some really quick wins, which was great at the start of the year out of Pinto Valley, and we were achieving much higher production with less unplanned.

But we had a couple of events in the last quarter that were what we would call them one-off events. We had a principal conveyor that moves the ore from our primary crusher to our tertiary crushers system. And that conveyor failed the belt split, and it turns out that it was a splice that was done a year before and the vulcanization was found to be of poor quality.

So it's about we want to have a system set up that we have good evaluation on these systems and processes. That was quite a -- it wasn't that it was catastrophic that it broke anything. It took a long time to bring that back online over a week, and we lost those production days.

So those are the things we're trying to drive out of the system now are those unique events by having regular proper inspections, more modern techniques and systems brought to bear on assets that ostensibly are 50 years old, as you mentioned. So those are the things we're doing to improve it.

And so with that, I'll hand it off to Raman for your original question around the CapEx.

[Raman Randhawa, executive]

Yes. The CapEx number you mentioned, Ralph, is kind of that range. We're in that 70 to 80 for the next few years as we continuously reinvest in the place and upgrade different components of the place over time.

[Ralph Profiti, analyst]

Appreciate that. Thanks to the team for their answers. And let me also echo the congratulations on the leadership transition. Very encouraging to see the continuity of the strategy. Thanks very much all.

[Operator]

And your next question comes from the line of Craig Hutchison from TD Cowen.

[Craig Hutchison, analyst]

I wonder if I could ask a similar question that Orest asked for Mantoverde, [indiscernible] at Mantos Blancos. How are things kind of progressing here in October with respect to throughputs and the pickup in grades that we were expecting?

[John MacKenzie, executive]

Thanks, Craig. And I'll pass that straight across to Cashel, just to talk about.

[Cashel Meagher, executive]

Yes. It's a similar story, Craig, to Pinto Valley in that some of the components are aging, and we are also implementing an asset management framework, and we've already been seeing the benefits of that. I mentioned in my script that we just reviewed that we were over 18,000 tonnes a day for August, September. And I would echo we're doing better in October than we had in August and September. So that's very encouraging.

Another very encouraging thing is, obviously, recoveries are improving. So that's very encouraging. And then the other one is we had a sort of -- in the start of the year, we had a small geotechnical issue in the mine that forced us to resequence the mine and had us going to slightly lower grades, and that's solved also.

So the work we did with the shutdown of the 2 weeks to be able to remedy the back end by putting in an extra positive displacement pump because really the three pumps were required to be online 100% of the time. So we needed in rotation to maintain one of the other three. So now we have four pumps. So three can be online all the time.

So we're no longer restricted by our -- what we see is, of course, is when you remedy one bottleneck, there is something else becomes the next bottleneck. And so we do have some improvements in our hydro screens and cyclones on the coarse fraction of the tailings. But we do see where we are now that we will hit several days in a row of the nameplate capacity that we speak about for that particular mine. And so we're sort of -- what we see is incremental improvement week-over-week, month-over-month, where we're approaching now in the high teens. Like I said, we're sort of steady at 18,000.

So we believe we've got a very robust plan to get us to that nameplate capacity to the start of the year, the new year. So we're pretty pleased with the progress we've made. I think some of the modifications we've done have been impactful and transformational there. And now the team can concentrate on some of the smaller items, things like recovery to be able to bring that up and improve on that end of it.

[Craig Hutchison, analyst]

Okay. Great. Maybe just a follow-up question for me. Raman, you mentioned about the target to get below 1x leverage before, I guess, you guys make a decision on Santo Domingo. Do those leverage targets also apply to the Mantoverde optimization project?

[John MacKenzie, executive]

Yes. I'll let Raman sort of comment in more detail about that. But overall, I think, Craig, we have a relatively sort of conservative approach to how we manage our balance sheet, how we finance. And we're not inclined to put the company at risk by rushing forward with any capital projects that are sort of potentially going to stress our balance sheet in any way.

Mantoverde Optimized is a fairly specific situation because to an extent, that operation is a little bit ring-fenced by the project financing facility that we have in place. Now what I can say is in the discussions we've had with our project financing banks, they're actually tremendously enthusiastic about us going ahead with Mantoverde Optimized. And so some of the things that are in our current covenants like cash sweeps, they seem very willing to review those with a view to instead of cash sweeps, reinvesting sort of some of that cash flow into Mantoverde Optimized instead.

But overall, when we look at our sort of leverage levels, I think we're pretty quickly going to be coming to that 1x net debt to EBITDA during the course of next year. So I think regardless, we should be in a position by the time we move forward with Mantoverde Optimized that we're sort of certainly on a leading basis, we're at that ratio, whether we're on a lagging basis.

Raman's probably got a better insight into. Raman?

[Raman Randhawa, executive]

Yes. I mean I agree with everything John said, Craig. And I mean, when you look at MV Optimized, we'll work through with the banks in terms of amendments on the PF and ability to reinvest. But -- when you look at Mantoverde in 2025 on a full run rate basis, like I mean, you're talking operating cash flow, $450 million, $500 million less than stripping. So you can tell just based on the cash flows at the site level, it'll be sufficient to kind of spend that $146 million over a 12-month period. And obviously, it's got a very quick payback. So -- and look, doing that in step while we're doing the financing for Santo Domingo, obviously, just improves our EBITDA and helps actually get lower -- get to that 1x even faster, if you think about it that way.

[Operator]

And your next question comes from the line of Adam Baker from Macquarie.

[Adam Baker, analyst]

Just wondering if we could get an update on how the Santo Domingo minority sell-down process is going and when we should receive an update on this? And maybe if you could give us a feel for the type of parties in the data room there.

[John MacKenzie, executive]

Yes, certainly. So we -- it's relatively recently that we have released the actual technical report, the full technical report for Santo Domingo. So obviously, we couldn't really progress the process until that was available for parties to look at. So that's been done.

I've been very pleased with the sort of interest and enthusiasm that's been shown of -- we've got now many parties in the data room. I was across in Japan last week together with our Head of Corporate Development. We met with quite a number of Japanese parties that are currently in the data room. I think those are very constructive discussions. Something which is also interesting is just the sort of emergence of interest of a lot of the sovereign wealth funds in the Middle East.

Again, we've got quite a number of parties from there who are in the data room. And then a bunch of others, I would say. So there's been wide-ranging interest. At the end of the day, we need to look at all these parties. We need to sort of consider what gets put on the table. But we also need to consider that this will be a partnership for sort of 30 or 40 or 50 years and that we need to make sure that there's good strategic alignment between ourselves and whichever party is finally selected to move forward with us.

So I think there's good progress, but I think it's probably going to be a couple of rounds. I think we're probably looking towards sometime in the first half of next year to be able to provide you with any sort of meaningful update.

[Adam Baker, analyst]

That's clear. And maybe just one on the BHP Copper Cities project. From memory, the last update was the exploration agreement be to September 2024. Could you maybe remind us what the next steps are there?

[John MacKenzie, executive]

Yes, certainly. I think we've extended that as far as I recall to July 2025. So that carries on. We're currently jointly doing some studies in terms of what the kind of optimal district looks like. And those studies need to be concluded before we can then kind of move from there into the commercial conversations. But I think proceeding very well at this point.

[Operator]

And your question comes from the line of Dalton Baretto from Canaccord Genuity.

[Dalton Baretto, analyst]

Thanks, operator. Good evening, everybody. And Jerrold, Cashel -- sorry, John and Cashel, congratulations. And also Dan for stepping into Jerrold's very big shoes.

Most of my questions have been answered. Just one for me, maybe for Cashel. There used to be some talk some time ago about the new tailings facility at Pinto Valley and how the water reclaim system there would unlock a de-bottlenecking up to 70,000 tonnes per day. I'm just wondering where that stands right now?

[John MacKenzie, executive]

Cashel, over to you.

[Cashel Meagher, executive]

Yes, sure, John. Yes, we're working through designs there. I would say that it's probably something early first half of next year, where we'll be in a position where we can disclose our new life of mine plans at Pinto Valley for a base case. And then some -- and then that, too, we'd be able to outline some of the optionality that's available to us at Pinto Valley. So you're quite correct that a new tailings dam could offer the opportunity for reclaimed water. It could also give us the opportunity to upgrade the horsepower in the current milling system. By doing that, then the circuit would be capable of more throughput. We know we have the capacity in the crushers as installed already.

So there is all of that opportunity, and those are the things we're sort of working with. It's actually connected with the work that's being done for the Copper Cities opportunity also because really to unlock the greater district, what you need is more capacity because most of the ore in the region is of the same grade between 0.3 and 0.5, there's available in resource close to maybe 2 billion or 3 billion tonnes available in the district. And so there are many different iterations between ourselves and BHP we're looking at. And our base case is to optimize Pinto Valley itself.

[Dalton Baretto, analyst]

Thanks, Cashel. That's actually a good segue into my follow-up question. So as you do think about the broader district and as you go through the asset reliability program, are you comfortable with the old Pinto Valley mill eventually being sort of the base case? Or at some point in time, do you think you'll need a new mill?

[Cashel Meagher, executive]

It's a great question. It's one we discuss a lot. Having a mill is the best asset and fixing that mill is the best asset. So I suspect in all the cases that, that mill in one form or fashion will be utilized. There's all sorts of permutations. I don't know which one is going to win in the race. But you could see yourself if you wanted to increase capacity to over 100,000 tonnes, you could simply put a SAG mill in front and then utilize these ball mills and maybe then use some of that excess crushing you have to be able to perpetuate some of our sulfide leaching, for example.

So there are a number -- I think the guys had between 10 and 15 different options that they were sorting through. The other one is building a completely new complex closer to sort of the Copper Cities resource.

So there are just so many different options, and that's the work that's being done is that trade-off study level, PEA scoping level such that we are choosing the best using several criteria. Execution risk is very important also. Permitting risk is very important. Water is very important. Like you said, new tailings facilities is very important. So all these things are being considered in there. But we're evaluating all those options.

[Operator]

And your last question comes from the line of David Radclyffe from Global Mining Research.

[David Radclyffe, analyst]

So my question is a follow-up on Mantos Blancos. I'm wondering if the delays you've experienced and the learnings from those impact on the thoughts for Phase 2 of the project in the current study. So I mean, at this stage, it sounds like you're still confident you can get to capacity with the recent works. But do you think that Phase 2 needs any additional works to the original scope to improve performance redundancies going forward?

[John MacKenzie, executive]

Yes. David, I'll give a brief comment and then just pass across to Cashel. But ultimately, to get from 20,000 up to somewhere between 27,000 and 30,000 tonnes a day, we need to -- we've got an existing plant. So we need to understand exactly where the bottlenecks lie.

Now what we do know is that we've got significant surplus crushing capacity. We've certainly got adequate milling capacity to get us to between 27,000 and 30,000. So it's really sort of downstream from there that we need to properly identify where the bottlenecks lie. And so until we've actually got the operation running at a sort of steady state current sort of nameplate capacity, it's not optimal to be trying to define sort of exactly what the best engineering is to move it to that next stage.

So we know we have the sort of resource base to support this growth. That's -- in fact, the optimal throughput rate today is probably somewhere between 27,000 and 30,000 tonnes a day. But I think at this stage, we really just want to be running steady state at design. And from that, we can then -- we can push the various parts of the system to be able to see where exactly do the bottlenecks lie and what is the most efficient way of spending capital to get us to that next sort of step upwards and whether that's best done in one step or in multiple steps.

Cashel, have you got anything you'd like to say to that?

[Cashel Meagher, executive]

No, I think you covered it, John. Thanks.

[Operator]

There are no further questions at this time. I will now hand the call back to Mr. MacKenzie for any closing remarks.

[John MacKenzie, executive]

Thanks, operator. So we look forward to welcoming some of you to our operations in Chile in a few weeks' time for our analyst and investor site tour. After that, we'll update you again in February with our Q4 results. Until then, stay safe and feel free to reach out to Daniel or Michael, if you have any further questions. Thank you for your continued support, and have a good day.

[Operator]

Thank you. And this concludes today's call. Thank you for participating. You may all disconnect.