Hudbay Minerals Inc

TSX:HBM

Earnings Call Analysis

Strong Performance and Improved Outlook at Hudbay Minerals

Hudbay Minerals executed its plan well in Q2 2024, producing 29,000 tonnes of copper and 59,000 ounces of gold. Despite lower production than Q1, the company reaffirmed its annual guidance. Improved cost control reduced cash cost guidance for copper to $0.90-$1.10 per pound from $1.05-$1.25. The Manitoba operations showed robust performance, and permitting advances in Peru could boost future production. Cash flow generation remained strong at $139 million, aiding substantial debt reduction. Copper World project in Arizona is progressing, with permits expected by year-end. Overall, Hudbay's diversified and efficient operations are set for a strong second half of 2024.

Solid Performance Amidst Operational Challenges

Hudbay Minerals achieved consolidated copper production of 29,000 tonnes and gold production of 59,000 ounces in the second quarter of 2024. This performance met the company's quarterly production cadence expectations for the year, although challenges such as heavy rains in Peru and transition issues at the Copper Mountain mine affected grades. Despite these challenges, Manitoba's strong operating results led to an optimistic outlook for stronger gold production in 2024.

Guidance Revision and Cost Control Success

Consolidated cash costs were $1.14 per pound of copper, allowing Hudbay to improve its 2024 cash cost guidance to a range of $0.90 to $1.10 per pound, a decrease from the previous range of $1.05 to $1.25. This revised guidance reflects a stronger outlook for the second half of the year, driven by ongoing operational improvements and higher gold byproduct credits.

Free Cash Flow and Improved Balance Sheet

Hudbay generated operating cash flow of $139 million, maintaining previous levels despite a decrease in adjusted EBITDA to $145 million due to planned lower production and seasonal effects. Notably, over the last 12 months, the company has generated nearly $400 million in free cash flow. Their focus on deleveraging saw over $150 million paid down in debt and liabilities during the quarter, reducing net debt to $632 million and achieving a lower net debt to adjusted EBITDA ratio of 0.8x, compared to 2.9x a year ago.

Growth Initiatives: Copper and Gold Production Insights

In Peru, Hudbay's operations produced 19,000 tonnes of copper and 11,000 ounces of gold, with total ore mined up by 38%. They are on track to achieve production goals despite lower-than-expected grades, anticipating higher grades in Q4 as stripping efforts yield favorable outcomes. In Manitoba, operational efficiencies at the New Britannia mill helped achieve gold recoveries of 90%. The company plans to expand milling capacity in the future, targeting a new mining area that could add significant production.

Strategic Project: The Copper World Initiative

Copper World remains a centerpiece of Hudbay's growth trajectory, identified as one of the highest-grade open-pit copper projects in the Americas with robust project economics. The company expects to secure the necessary state permits by the end of 2024, ultimately allowing them to launch a joint venture process. The project promises a net present value of $1.1 billion, with a strong internal rate of return projected at 19% based on copper prices of $3.75 per pound.

Exploration and Pipeline Development

Hudbay has initiated its largest annual exploration program in Snow Lake, focusing on extending the known mineralization near the Lalor deposit. Current drilling at the Lalor Northwest discovery shows promising results with high concentrations of copper and gold. The company plans to continue its aggressive drilling campaign into 2025, aiming to enhance its mining portfolio and strategic resources.

Market Opportunities and Forward-Looking Statements

The management underscored the strong fundamentals for copper due to global decarbonization demands. The anticipated production from Copper World will significantly contribute to domestic U.S. copper supplies, marking Hudbay's strategic positioning as a reliable copper producer in a competitive landscape. With investor interest growing and expectations of robust future cash flows, Hudbay is poised for continued growth and profitability.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hudbay Minerals Inc. Second Quarter 2020 Results Conference Call. [Operator Instructions] I would like to remind everyone that the conference call is being recorded today, August 13, 2024 at 11 a.m. Eastern Time.

I will now turn the conference over to Candace Brule, Vice President, Investor Relations. Please go ahead.

[Candace Brule, executive]

Thank you, operator. Good morning, and welcome to Hudbay's 2024 Second Quarter Results Conference Call. Hudbay's financial results were issued this morning and are available on our website at www.hudbay.com. A corresponding PowerPoint presentation is available on the Investors section of our website, and we encourage you to refer to it during this call.

Our presenter today is Peter Kukielski, Hudbay's President and Chief Executive Officer. Accompanying Peter for the Q&A portion of the call will be Eugene Lei, our Chief Financial Officer; and Andre Lauzon, our Chief Operating Officer.

Please note that comments made on today's call may contain forward-looking information, and this information, by its nature, is subject to risks and uncertainties. And as such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the company's relevant filings on SEDAR+ and EDGAR. These documents are also available on our website. As a reminder, all amounts discussed on today's call are in U.S. dollars unless otherwise noted.

And now I'll pass the call over to Peter Kukielski.

[Peter Gerald Kukielski, executive]

Thank you, Candace. Good morning, everyone, and thank you for joining us. In the second quarter, our operations continued to execute on plan, which has positioned us well to achieve our 2024 annual production guidance. The operations also demonstrated strong cost control, which, together with our exposure to higher gold byproduct credits, has allowed us to improve our 2024 consolidated cash cost guidance. Our strong and diversified operating base continues to generate free cash flow from efficient performance in Peru and Manitoba. And in British Columbia, we continue to execute on our stabilization initiatives and planned stripping program to unlock higher copper grades.

We have transformed our balance sheet and are now in the best position we have ever been in to advance our many growth initiatives, which would unlock significant upside potential in our pipeline and further enhance our copper and gold exposure. We will go into more detail on our second quarter operating and financial performance throughout today's presentation, along with providing an update on many of the exciting growth initiatives underway.

Slide 3 summarizes the financial performance in the second quarter. We achieved consolidated copper production of 29,000 tonnes and consolidated gold production of 59,000 ounces in the quarter. This was in line with our quarterly production cadence expectations for 2024 as we executed the planned stripping programs in both Peru and British Columbia this quarter.

We are well-positioned to achieve stronger production in the second half of 2024 in accordance with the mine production profile and have reaffirmed 2024 consolidated production guidance for all metals. As we are now halfway through the year, we can give a bit more color on where we expect to be within the ranges. Consolidated copper production is likely to be below the midpoint of the guidance range, while consolidated gold production is expected to be above the midpoint of the guidance range. This is primarily a result of lower-than-expected grades and timing impacts from heavy rains in Peru earlier this year as well as the transition period at Copper Mountain as we execute the stabilization plans. Manitoba's robust operating performance, primarily driven by continued outperformance at the New Britannia mill and higher-than-expected grades, has led us to expect stronger gold production for 2024.

Consolidated cash costs were $1.14 per pound of copper in the second quarter. This continued strong cost performance has allowed us to improve our 2024 consolidated cash cost guidance to a range of $0.90 to $1.10 per pound. This compares to our previous guidance range of $1.05 to $1.25 per pound. The improved guidance reflects the stronger outlook expected in the second half of 2024 and the benefits of complementary gold exposure, and we have reaffirmed all other 2024 guidance metrics.

Operating cash flow before change in non-cash working capital of $122 million was lower than the first quarter as a result of the planned lower production levels, partially offset by higher realized metal prices and continued strong cost performance. This quarter was also impacted by copper sales volumes in Peru and zinc sales volumes in Manitoba due to timing of shipments. We also saw elevated taxes from mining taxes that are calculated based on taxable mining profits in each jurisdiction. Cash flows benefited from effective working capital management, which resulted in cash generated from operating activities of $139 million, remaining unchanged from the first quarter.

Adjusted EBITDA of $145 million in the quarter was lower than the first quarter due to the same reasons affecting operating cash flow. However, trailing 12-month adjusted EBITDA was $824 million, a substantial increase from $407 million a year ago. Adjusted earnings per share attributable to owners was nil in the second quarter. After deducting sustaining capital expenditures and cash lease and community payments, we generated approximately $30 million in free cash flow this quarter. This continues our quarterly trend of generating positive free cash flow. And over the last 12 months, we have generated nearly $400 million in free cash flow.

Turning to Slide 4. Our strong free cash flow generation, combined with the proceeds of the successful equity offering we completed in May, have enabled us to further improve our balance sheet. During the quarter, we took several prudent measures to further progress against our deleveraging targets by paying down more than $150 million in debt and gold prepay liabilities. The oversubscribed and upsized $400 million equity offering added $386 million of net proceeds to our cash balance in addition to broadening our investor base and bringing many cross-border long-term investors to our shareholder register. We used some of these funds to repay the full outstanding balance of $90 million on our senior secured credit facilities. We also repurchased and retired $34 million worth of senior unsecured notes during the quarter, and we completed an additional 3 months of gold deliveries under the gold prepay agreement, reducing the liability by $24 million and progressing us towards fully repaying the gold prepay facility by the end of August.

As a result of continued cash flow generation and the deleveraging efforts, we have reduced net debt by more than $550 million over the past 12 months. And as of June 30, our net debt is $632 million. This brings our net debt to adjusted EBITDA ratio to 0.8x compared to 1.6x at the end of 2023 and 2.9x a year ago. The improved balance sheet flexibility and accelerated debt reduction significantly advances our progress as part of our 3-P plan for sanctioning Copper World and results in the successful achievement of the targeted 1.2x net leverage ratio well ahead of schedule. Subsequent to the quarter, deleveraging efforts continued in July and August with an additional $48 million of open market purchases of our senior unsecured notes at a discount.

Moving to Slide 5. Our Peru operations produced 19,000 tonnes of copper, 11,000 ounces of gold, 450,000 ounces of silver, and approximately 400 tonnes of molybdenum in the quarter. We continue to be on track to achieve our 2024 production guidance for all metals in Peru. Total ore mined in the second quarter increased by 38% compared to the prior quarter and was in line with the mine plan. As part of the mine plan to unlock the next mining phase in the Pampacancha pit, the team is well-advanced in executing the stripping program that will continue until September. It is intended to unlock higher copper and gold grades at the Peru operations in the fourth quarter of 2024.

The Constancia mill continues to perform well, averaging throughput of 87,000 tonnes per day in the first half of the year. Ore milled in the second quarter was slightly lower than the prior quarter due to the semiannual mill maintenance shutdown. Ore milled included supplemental ore feed from stockpiles during the quarter as the team advances pit stripping activities. Milled copper and gold grades decreased in the second quarter due to lower amounts of high-grade ore from Pampacancha in addition to lower grades from processing stockpiled ore. Recoveries continue to be in line with our metallurgical models.

Peru's cash costs were $1.78, up from the exceptionally low first quarter, primarily due to the lower planned production, planned mill maintenance and byproduct credits. Full year cash costs are expected to be within the 2024 guidance range, reflecting a stronger production profile in the second half of the year.

During the quarter, the Peruvian Ministry of Energy and Mines approved a regulatory change to allow mining companies in Peru to increase throughput by up to 10% above permitted levels. Based on this flexibility, we are evaluating the potential for increasing future production at Constancia as early as 2026, which could partially offset the grade declines after the completion of mining at Pampacancha in late 2025. Our exploration activities surrounding the Maria Reyna and Caballito properties near Constancia continued to focus on permitting and drill preparation.

As part of the drill permitting process, environmental impact assessment applications, or EIAs, were submitted for the Maria Reyna property in November 2023 and for the Caballito property in April 2024. The EIA for Maria Reyna was approved by the government in June 2024, and the Caballito application continues to make progress through the permitting process. This represents one of several steps in the drill permitting process, which is expected to take approximately 12 months to complete after the EIAs are approved.

Moving on to our Manitoba business. As summarized on Slide 6, we saw another quarter of strong operating performance. The Snow Lake operations maintained steady production results while overcoming some challenges in the quarter, including forest fires and temporary production interruptions at the Lalor mine. The Manitoba team's resilience and dedication ensured that the operations continue to function effectively and efficiently while achieving our quarterly production targets.

Second quarter production included 43,000 ounces of gold, 2,600 tonnes of copper, 8,000 tonnes of zinc, and 210,000 ounces of silver. As anticipated, quarterly production decreased compared to the exceptional results achieved in the first quarter, primarily due to a planned lower grade mining sequence in the quarter. We remain well on track to achieve our 2024 production guidance for all metals in Manitoba.

Total ore mined in the second quarter was 5% lower than the first quarter, reflecting issues with the production hoist gearbox and electrical faults on the hoist drives, which caused the 10-day stoppage in hoisting ore. The hoisting downtime was offset by value-added activities, including underground ore buildup close to the shaft, waste filling, increased maintenance, building long-haul inventory, and trucking ore to surface. Additionally, the team implemented stope design modifications that yielded positive results by improving marketing efficiency throughout the life cycle of the stopes. The new Britannia mill has been consistently exceeding performance expectations, achieving 1,650 tonnes per day in 2023, more than 1,850 tonnes per day in the first half of 2024, and a new monthly record of nearly 2,100 tonnes per day in June 2024.

The ongoing efforts to increase throughput are aligned with our strategy to maximize gold production by directing more gold ore from Lalor to the New Britannia mill for higher recoveries. Recoveries of gold and copper were 90% and 94%, respectively, in the second quarter. The final payment under the gold prepay facility that financed the refurbishment of New Britannia is in August 2024, which will allow us to further enhance our exposure to higher gold production in Snow Lake. With approximately 2 million ounces of contained gold in current mineral reserve estimates and another 1.4 million ounces of contained gold in inferred resources, the New Britannia investment has unlocked significant value in Snow Lake. This could be further enhanced by regional exploration upside and the current strong gold price environment.

In the first quarter of 2024, we received a permit to increase the production rate at New Britannia to 2,500 tonnes per day, which will provide the opportunity to process more Lalor ore at the New Britannia mill and create additional processing capacity for potential new regional discoveries in Snow Lake. And to close off the Manitoba slide, gold cash costs were $771 per ounce in the second quarter and full year gold cash costs are expected to remain within the 2024 guidance range.

In British Columbia, we continue to focus on advancing our operational stabilization plans at our Copper Mountain mine. As seen on Slide 7, BC produced 6,700 tonnes of copper, 4,500 ounces of gold, and 77,000 ounces of silver. Copper production was slightly lower than the first quarter, primarily a result of lower head grades from the processing of stockpiled ore to feed the mill, while mining activities are focused on executing the planned stripping program. Gold production was consistent with the first quarter. We have reaffirmed our 2024 production guidance ranges for all metals in British Columbia.

The mill processed a total of 3.2 million tonnes of ore during the quarter with mill availability averaging 94%, while maintaining a stable throughput rate. Copper recoveries in the quarter were 82.3%, consistent with the strong levels achieved in the first quarter despite lower grades as the operations improved the regrind circuit constraint and implemented the flotation operational strategy improvements.

Cash costs were $2.67 per pound of copper, 23% lower than the prior quarter, primarily due to lower mining costs as the prior quarter had high ore rehandling costs. We anticipate costs to continue to decrease over time as we continue to implement our stabilization and optimization initiatives. Full year cash costs are expected to be within the guidance range.

Slide 8 highlights the improvements we have seen at Copper Mountain through the continuation of our stabilization efforts since acquisition. The key elements of our stabilization plans include executing a campaign of accelerated stripping to access higher grades and implementing several plant improvement initiatives to increase mill throughput and recoveries.

Year-to-date performance has achieved the highest mill availability and highest copper recoveries in the last decade. As a result, we are on track to realize the 3-year annual operating efficiencies target of $20 million. And we already achieved and exceeded the targeted $10 million in annualized corporate synergies earlier this year.

Hudbay's 3-year accelerated stripping campaign commenced in early 2024 to mitigate the substantially reduced stripping that occurred over the 4 years prior to our acquisition. Total material move continued to ramp up in the quarter as a result of effective usage of the mining fleet as part of the fleet production ramp-up plan. We have successfully remobilized all 28 haul trucks and added 5 additional haul trucks this year to execute the accelerated stripping campaign at a lower cost than the contractor mining costs assumed in the technical report. We have also deployed an additional shovel and drill. With these in place, total material moved is expected to continue to increase quarter-over-quarter as per the mine plan, which will further enhance operating efficiencies and lower unit operating costs. Additionally, we are implementing plant improvement initiatives that mirror the successful processes at our other operations, specifically Constancia.

Initiatives that began earlier in the year are progressing on target, including reprogramming the mill expert system, installation of advanced semi-autogenous grinding control instrumentation, redesign of the SAG liner package and updated operational procedures intended to remove magnetite from the pebble stream. The mill throughput performance has been limited by reduced reliability of the secondary crushing circuit, reaching average daily mill throughput of 35,500 tonnes per day in the second quarter. During the quarter, several initiatives were advanced to address these issues and other identified constraints and improve throughput to targeted levels.

The benefits of the operational stabilization improvements are expected to continue to be realized throughout 2024 and result in stronger performance at Copper Mountain in the second half of the year. We are also accelerating engineering studies to de-bottleneck and increase the nominal plant capacity to 50,000 tonnes per day earlier than was originally contemplated in the technical report.

Turning to Slide 9. Copper World is the next greenfield copper development project in our growth pipeline, offering significant copper exposure and highly attractive project economics. Copper World is one of the highest grade open-pit copper projects in the Americas with proven and probable reserves of 385 million tonnes at 0.54% copper in Phase 1. There is roughly 60% of total contained copper remaining in the measured and indicated resources, excluding reserves, which provides significant upside potential for Phase 2 expansion and mine life extension beyond the initial 20 years.

The Phase 1 pre-feasibility study released in September of 2023 demonstrated enhanced project economics and optimized flow sheet and a simplified permitting process with an extended mine life to 20 years. The project generates an NPV of $1.1 billion and an after-tax internal rate of return of 19% at a copper price of $3.75 per pound.

As we progress towards making a sanctioning decision, we will continue to be prudent with our financing plans for Copper World by remaining focused on meeting all of the prerequisites outlined in our 3-P plan that we released in late 2022 as summarized on Slide 10. The first key state permit required for copper world, the mined land reclamation plan was initially approved by the Arizona State Mine Inspector in October 2021 and was subsequently amended and approved to reflect a larger private land project footprint in June 2022.

In late 2022, we submitted the applications for an Aquifer Protection Permit and an Air Quality Permit to the Arizona Department of Environmental Quality. The public comment period for the Aquifer Protection Permit was completed in the second quarter of 2024, while the public comment period for the Air Quality Permit commenced in July. Hudbay continues to expect to receive these 2 outstanding state permits in the second half of 2024. We anticipate launching the formal joint venture process after we secure our permits. We continue to see strong initial interest from potential joint venture partners as many industry participants are focused on increasing copper exposure. As securing copper supply becomes a growing global concern, Copper World will be a key contributor to the domestic U.S. supply chain with our intention to produce Made-in-America copper cathode.

Slide 11 highlights some of the recent exploration results in Manitoba. In 2024, we embarked on the largest annual Snow Lake exploration program in the company's history in the region with the goal of extending known mineralization near the Lalor deposit to further extend mine life as well as to find a new anchor deposit within tracking distance of the Snow Lake processing infrastructure. The winter portion of the program included the largest ground electromagnetic survey in Hudbay's history. Last year, we acquired an expanded land package, including the Cook Lake claims and Rockcliff properties, and most of the newly acquired claims had been untested by modern deep geophysics.

During the second quarter, we completed a surface EM survey covering 25 square kilometers in the Cook Lake area to the north of Lalor. These surface EM surveys use cutting-edge techniques that enable our team to detect conductive bodies at depth of over 1,000 meters below surface. The new EM methodology is unique to Hudbay and will lead to an advanced understanding of the mineralization at depths previously undetectable. This geophysics program resulted in the identification of a number of anomalies and prospective targets across the Snow Lake tenements, which are currently being tested. They are located near the former Reed and Anderson mines and in the vicinity of the Bur and Rail deposits that were required as part of the Rockcliff transaction. In 2025, we plan to conduct a similar-sized geophysical program to continue our mapping of the consolidated land package in the region.

With the 2024 summer drill program well underway, the team currently has 6 drill rigs turning in Snow Lake, ramping up to 8 drill rigs in August. The summer program is testing the new geophysical targets and completing follow-up drilling at potential regional satellite deposits and at the new Lalor Northwest discovery, which I will discuss on the next slide. Results from the summer drill program are expected in late 2024. Additionally, drilling of a very strong deep anomaly at Cook Lake North will be tested in the coming weeks as part of the next phase of our 2024 exploration program.

Moving to Slide 12. The 2024 winter drill program also included follow-up drilling at the Lalor Northwest target. In the second quarter, we received positive assay results confirming the discovery of 2 mineralized zones located within 400 meters of the existing Lalor underground infrastructure. The discovery hole in 2023 intersected 2 mineralized zones, including 4.8 meters at 2.7% copper, 2.92 grams per tonne gold and 80.3 grams per tonne of silver. In 2024, a follow-up hole intersected the same 2 mineralized zones, including 9.0 meters of 2.88% copper, 6.27 grams per tonne of gold, and 88.9 grams per tonne of silver.

These promising results justify additional follow-up drilling that is being completed as part of the summer 2024 exploration program. We have 2 drill rigs turning at Lalor Northwest and assays are expected to be received by the end of the year. We will use the results to determine the potential size of Lalor Northwest and the potential for future underground exploration drift development from Lalor. Lalor Northwest has the potential to add near-term production growth at Lalor, extend mine life and create additional value from the Snow Lake operations.

In Manitoba, we are also continuing to advance the access drift at the 1901 deposit to enable infill drilling aimed at converting the inferred mineral resources in the gold lenses to mineral reserves, which is shown on Slide 13. In the first quarter, we commenced the development of the smaller profile, lower cost drift from the existing Lalor ramp. The 1901 drift is proceeding on plan and is expected to reach the mineralization in early 2025. We then expect to conduct definition drilling intended to confirm the optimal mining method, evaluate the ore body geometry and continuity, and convert inferred mineral resources in the gold lenses to mineral reserves. Pending positive results in the drilling programs, the plan is to initiate a haulage drift and other related mining infrastructure in 2025 and 2026 in anticipation of full production from the 1901 deposit in 2027.

Additionally, in Flin Flon, we continue to advance tailings reprocessing studies to evaluate the potential to repurpose the existing Flin Flon concentrator to reprocess tailings. The tailings reprocessing opportunity is expected to recover critical minerals and precious metals while creating environmental and social benefits for the region. During the second quarter, we received results from the initial confirmatory drill program in the section of the tailings facility that was utilized by the zinc plant. The results confirmed grades of precious metals and critical minerals previously estimated from historical zinc plant records. Our early economic study evaluating zinc plant tailings reprocessing has shown promising results that warrant further engineering work in the second half of 2024. We are also planning a similar study with respect to the mill tailings.

Concluding on Slide 14, Hudbay's leading copper development and exploration pipeline and low-cost, stable operating platform in Tier 1 jurisdictions offers investors meaningful copper exposure, complementary gold exposure, and strong near-term free cash flow generation. We produced more than 150,000 tonnes of copper per year, which is further augmented by our complementary gold exposure that offers cash flow resiliency in volatile pricing environments. We believe that copper has the best long-term supply and demand fundamentals in the sector as global copper mine supply will be unable to meet demands from global decarbonization initiatives and growing copper demands. Hudbay's resilient operating platform offers significant upside potential for further value creation at higher copper and gold prices.

And with that, we are pleased to take your questions.

[Operator]

[Operator Instructions] The first question comes from Orest Wowkodaw with Scotiabank.

[Orest Wowkodaw, analyst]

A couple of questions, if I could. Firstly, your copper production for the year is obviously tracking below the midpoint of the guidance just based on the first half of production. What kind of grade are you expecting in Peru in the second half of the year in to make that up?

[Peter Gerald Kukielski, executive]

Good morning, Orest, this is Peter. Thanks very much for the question. I think as we've previously said, the production cadence is such that it will be lower in the first half, especially in Q2 given the stripping that we're doing at Pampacancha, and we're doing some continued stripping at Pampacancha in the second quarter. So overall, we expect the year to -- the contribution of Pampacancha to be roughly 1/3 to 2/3 of Constancia pit production over the course of the year. And the grades would be -- would match that.

Andre, do you have any more detailed view with respect to what the average grade would be?

[Andre Lauzon, executive]

It varies by quarter in terms of -- towards the end of Q3, we're really going to start to see it increase and then into Q4, but in that 0.4%-ish to 0.55%, 0.57% range or something in that over the 2, but increasing definitely towards into Q4. Orest, what we've done is over this quarter and last is we've really opened up Pampacancha to be able to have exposure to some other benches that maybe might have been into 2025 and we're looking at those as possibilities to bring in, in Q4 to really finish off the year nice.

[Orest Wowkodaw, analyst]

Sorry, just to clarify, are you saying that the Q3 average grade could be sort of similar to Q2 with then, I guess, sets up a pretty monster Q4? Is that what you said?

[Andre Lauzon, executive]

It's a little bit higher. It's a little bit higher in Q3, closer to 0.35% to 0.4%-ish or something in that range, right, in that range. But it's definitely Q4 is where it really comes in. So it's -- we're in a real strip mode right now, Orest, and the latter part of Q3 is when we'll start seeing the grades really starting to come in.

[Orest Wowkodaw, analyst]

And just on Maria Reyna, if I understand, you got the EIS permit to do drilling. Does that mean you can now begin drilling immediately, or are there other steps required before you can start drilling?

[Peter Gerald Kukielski, executive]

Orest, there are other steps that are required before we can start drilling. So I think the EIA is certainly the first step. But typically, what it would take is about another 12 months after award EIA to be able to actually start drilling.

[Operator]

The next question comes from Ralph Profiti with Eight Capital.

[Ralph Profiti, analyst]

It sounds like the next big capital allocation decision in Manitoba is going to be the New Brit expansion to 2,500 tonnes a day. Can you talk a little bit about sort of what that looks like in terms of timing? And how much of that is dependent on things like exploration success, finding that anchor deposit, perhaps bringing 1901 into it? And what's that short-term outlook on the decision-making process there, please?

[Peter Gerald Kukielski, executive]

Thanks, Ralph. Thanks for the question. Look, I don't -- I wouldn't characterize New Brit expansion as a major capital allocation decision. We continue to investigate and implement high return throughput enhancements that require low capital outlay. And I think that the continuation of our efforts to achieve operational excellence that we've seen over the last couple of years. So progressively, we'll ratchet up the production. I think we -- in the last month, we exceeded 2,000 tonnes a day.

But Andre, maybe you could provide a little bit of light on exactly what the capital -- the nature of the capital decisions is, but I don't think that there's -- it's not a -- it's not substantial at all.

[Andre Lauzon, executive]

Yes. No, that's correct. They're all very, very small capital projects for subtle improvements I'll give you some examples of. We've been seeing some wear on our Sinai destruction tanks that, similar to what we were doing as you put that tailings product through our [ PACE ] plant. And what we see are these -- we're running at very high rates through the mill and then you have some of these outages. And so subtle things like changing the liners on those tanks that are very minor -- some minor pump upgrades, some closures around thickeners where we see delays. And they're all very subtle improvements because on a daily basis, we are running at quite high levels, above -- you can see peak rates up to 2,400 tonnes per day as it is right now. And so as Peter said, it's mostly through process improvement and they're all sub like $10 million. It's not in total, like they're not very big expenditures.

[Ralph Profiti, analyst]

In British Columbia, just wondering if you guys have set targets or KPIs on where you want to be at year-end with regards to throughput and recoveries. Just kind of looking to benchmark some of the stripping work that you're doing and how the cadence looks going into 2025?

[Andre Lauzon, executive]

Sure. So I think that there's 2 parts to the question. It's a good question. So on the stripping, we're running pre-rate -- pretty much right now at a, call it, a flat cost. We finally -- we've ramped up our workforce, we've done the purchase of -- and lease of the equipment, the refurbishment of drills and shovels. And so we're just in the month of August right now, we're basically at our full complement with fleet and people. And so over the past few months, we are seeing some of the incurring of those costs although the movement hasn't been quite there. And so like what we're looking at from where we were coming out of Q2 to where we are there now is in the Q2 range, we were about probably 200,000 tonnes per day. We're ramping up in August up to somewhere around 250,000 tonnes per day and continuing out through the rest of the year.

So the material movement is increasing. But other than consumables like fuel and some explosives, most of that cost is fixed. So our unit cost per material move will be going down as we go forward. So not a major increase in capital per se, it's just using the equipment and the investments we had with the seats, the truck drivers and seats and up and trained.

In terms of the mill throughput, so really proud of the work of the team. They've done an excellent job like mill availability is really high. It's -- I think it's in the 94-or-so percent range at the moment, which is getting very close to Constancia, which is world-class. And so the mill is running really well. And what we're dealing with is the feed size. So it's really stabilizing. We're averaging 35,000 to 40,000 tonnes per day. And that's heavily driven by the feed size that goes to the mill, which goes through a secondary crusher. And so by the end of the year with the projects that we have in place, I think there's 1 or 2 more tweaks, I think that the team is planning around new liners coming in, in November, some ball-sizing changes and some improvements to the call it, the AI. It's -- could they call it a mill slicer and to optimize the -- how the SAGs work with -- and the grinding circuit. And so the combination of those, we think will probably be around 41,000 tonnes per day and something in that range, with all those going in towards the end of the year.

And then what we're working on right now is a series of capital projects, so to get us to that next level. I think in the MD&A, we talk about going to 50,000 tonnes a day much sooner than we were anticipating as the teams are proceeding right now at feasibility level. 2 capital projects that we hope to bring towards the Board later this year for approval to really make that step change. And that'll be the, call it, the milestone change for Copper Mountain mine. The costs have really been reducing, recoveries are doing really well. It's running really well, and we just need that little uptick to -- that will bring it to -- it will really drive the profitability.

[Ralph Profiti, analyst]

That's great. Good progress. Thanks, Andre. Peter.

[Operator]

The next question comes from Lawson Winder with BoA Securities.

[Lawson Winder, analyst]

Could I ask on M&A and ask you to describe how you might view your current posture on potential acquisitions and whether Hudbay is currently actively evaluating opportunities?

[Peter Gerald Kukielski, executive]

Thanks, Lawson. Look, I think that, as I've previously said, I think that Hudbay has an extremely skilled team when it comes to highly efficient operations and world-class development projects. And we feel we can create value from both operating and development stage assets. So our strategy hasn't changed and we'll continue to be disciplined as we evaluate assets that fit our stringent strategic and financial criteria. And as you know, copper assets are scarce, and we would only pursue opportunities that are accretive and that create value for our shareholders. But that said, I think that, again, you're aware that those assets are extremely scarce. And it took us a long time to sort of land on Copper Mountain, we continue to scale the marketplace for assets. And we haven't landed on anything right now that meets our criteria, but we continue to seek those opportunities.

[Lawson Winder, analyst]

And is it the case that your criteria remains Western countries? And has there been any change to the criteria at this point, particularly in light of how much more substantial Hudbay is in terms of copper producer?

[Peter Gerald Kukielski, executive]

Yes. We're still sort of -- we focused on Tier 1 mining jurisdictions very much. So the Americas in majority, but in the past, we have actually looked to Europe and other investment-grade jurisdictions.

[Lawson Winder, analyst]

And then could I also ask just in follow-up to the public comment period for the Air Quality -- or sorry, the Aquifer Permit, I think, is the one that completed in Q2? Was there anything in those public comments that might have updated your view on kind of the social license outlook for Copper World? Were there any sort of strong arguments against the project or would you describe the comments is fairly supportive?

[Peter Gerald Kukielski, executive]

In general, it's fair to say that the comments are fairly supportive. In fact, there are a massive number of comments that were received in support of the project, which, of course, were received by the Arizona Department of Environmental Quality. As always, there will be positive and negative. But our view is that the process we're sort of moving inexorably towards approval of that permit during the course of the remainder of the year.

[Operator]

[Operator Instructions] The next question comes from Dalton Baretto with Canaccord.

[Dalton Baretto, analyst]

Maybe I'll start by staying on the Copper World permits here. Peter, with the election coming up in November, I realize these permits are state-level permits. But do you see any sort of delays to the process at all?

[Peter Gerald Kukielski, executive]

Not at this point, Dalton. The reason why I say that, I mean, we are very, very confident that we will secure the permits by the end of the year, subject to -- perhaps what I'm trying to -- what I want to say is that if the Arizona Department of Enviromental Quality has questions that need to be resolved and they require a little bit of time in which to do that, of course, we would cooperate with them. But we have a strong commitment by the ADEQ to complete their work by the end of the year. I don't think that this permitting process relies one bit on the political landscape in the United States at the moment. It is very, very much a state-driven process. We are deeply engaged with the ADEQ and it's a very, very constructive relationship. So we expect that those permits will be granted by the end of the year. That said, if there was a request by the states in that would bolster the robustness of those permits, then of course, we would collaborate with them. But there are no signs that that's -- that will be the case. We're pretty confident we get there this year.

[Dalton Baretto, analyst]

And then as a related question, and I think I asked you this in the last call in a very different copper price environment and a copper sentiment environment, but are you still planning on waiting for the permits to kick off the JV process, or have you loosened on that stance?

[Peter Gerald Kukielski, executive]

It's actually a really interesting question, Dalton. I think that we are in a much better financial condition. In the context of Eugene's 3-P plan, we have met the prerequisites for that 3-P plan on from a financial perspective. We still do expect to initiate a minority JV partner process after we receive the state-level permits. And we expect that process to be robust based on the track record that we have and based on the initial indications that we have from potential partners with whom we are engaging.

So very much there's no change in plan. We think that it's the right thing to do. And we continue to look for a long-term partner who is bullish on the copper price and looking to grow their copper exposure. And it's -- all signs point towards that being very robust.

[Dalton Baretto, analyst]

Great. And then maybe I can ask you one sort of big-picture question, if I may. You're mining Pampacancha, now you're generating free cash flow, the Peru sort of political issues are well behind you, you've cleaned up the balance sheet. And yet in my numbers, you still trade at a fairly substantial discount to peers. And I'm just wondering if I could ask, A, why do you guys think that is? And number two, how does that play into your strategic thinking going forward?

[Peter Gerald Kukielski, executive]

Thanks, Dalton. Look, I think that a big piece of that is investors and the market are waiting for the outcomes of the Copper World permitting process. I think that's number one. I think there's a little bit of -- let's wait and see with respect to Maria Reyna and Caballito. And we're moving sort of inexorably towards receipt of those permits as well. But as you know, as was the case of Pampacancha, if things permitting takes time in Peru. And so I think those things built into some of the valuation delta. But from a financial or balance sheet perspective, from a jurisdictional risk perspective, I think all of that has gone away.

Perhaps, Eugene, you might comment further if you have other thoughts.

[Chi-Yen Lei, executive]

No, I think we are encouraged by the investor interest that has been in Hudbay through this -- particularly through this year and our oversubscribed equity offering. And valuations improved and they see the opportunity to get exposure to our increasing cash flows and the catalyst that Peter has outlined. And we look forward to making them a lot of money.

[Operator]

This concludes the question-and-answer session.

I would like to turn the conference back over to Candace Brule for any closing remarks.

[Candace Brule, executive]

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

Thanks, and have a great day.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.