Lundin Mining Corp
TSX:LUN
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Lundin Mining Corp
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Good morning. My name is Lisa, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Lundin Mining Q3 2018 Conference Call. [Operator Instructions]Thank you. Marie Inkster, President and CEO, you may begin your conference.
Thank you, everyone, for joining Lundin Mining's third quarter 2018 results call. On the call to assist me with the presentation and to answer any questions are Jinhee Magie, our Senior Vice President and Chief Financial Officer; and Peter Richardson, our Senior Vice President and Chief Operating Officer. At the beginning of this month, as I formally assumed the role of President and CEO from Paul, we announced Jinhee's appointment to Senior Vice President and Chief Financial Officer. She is a testament to the great team and depth of talent we have at Lundin. She joined in 2008 and has over 25 years of experience in acquisitions and divestitures, public and private equity financing, public company reporting, and we look forward to investors and analysts getting to know Jinhee better over the coming quarters. As with previous calls, Peter Richardson, our Senior Vice President and Chief Operating Officer, is here to assist with questions. Many of our covering analysts were able to spend time with Peter in September during our Candelaria site visit and learn a little more about his depth of experience. We look forward to investors and analysts getting to know Peter better as well.I would like to express my excitement and optimism for the future of Lundin Mining. Since 2008, when I joined Lundin Mining, the industry and our company have both changed considerably. These changes, I believe, have led to many more positive developments for the company than setbacks, and Lundin Mining is positioned extremely well for the future. Looking forward, it's no secret we have a vision to growth. We continue to actively pursue new growth opportunities. And I want to confirm that this will be with the same general criteria, rigor and discipline we have demonstrated in the past, to best allocate our shareholder capital and create long-term value.While we pursue these opportunities, we will continue to prudently manage our balance sheet and to evaluate and consider other returns of capital to shareholders beyond our regular dividend. As we execute, our experiences advancing Neves-Corvo and Zinkgruvan as well as demonstrated success integrating and further developing Eagle and Candelaria provide us with a blueprint for continued success. We do not take for granted our great teams and our assets. We have had another strong quarter operationally and continue to advance our projects at Candelaria, Neves-Corvo and Eagle. Looking at our summary of results. Our operations in aggregate produced over 100,000 tonnes of base metals in the third quarter. We are well on track to meet or exceed annual copper and nickel production guidance. Annual zinc production guidance has been lowered slightly to reflect production realized to date at Zinkgruvan.Third quarter cash costs at each operation were better than annual guidance, with the exception of Neves-Corvo. Gross operating costs at Neves-Corvo were in line with plan. However, a lower zinc price than assumed and slightly lower zinc sales negatively impacted by-product credit. In aggregate, we sold just over 90,000 tonnes of payable base metals. Zinc and nickel and concentrate sales led production in the quarter. We expect these sales to be caught up in the fourth quarter. As can be seen on this slide, we remain predominantly leveraged to copper. Similar to last quarter, copper generated 70% of our revenues, while zinc contributed 16% and nickel 8%. 46% of revenue was from Candelaria, and Neves-Corvo delivered a very meaningful 28% of our sales.I will now turn it over to Jinhee to review the financial highlights.
Thanks, Marie. I'm really excited to be here. I've been at Lundin Mining for over 10 years and look forward to continuing to work with Marie, Peter and the rest of the team in my new role as well I look forward to meeting some of you on this call.This slide is a summary of the third quarter financial results, the details of which are in our financial statements and MD&A issued last night. Revenue was 37% lower over the same quarter last year and gross profit 77% lower, mainly attributable to lower metal prices and the negative impact of provisional price adjustment as well as lower sales volumes.Specifically, our third quarter 2018 copper sales were recorded at an average price of $2.81 per pound. However, adjustments to prior period provisional prices had a negative impact of $0.24 per pound, such that our realized price for the quarter was $2.57 per pound of copper sold. Altogether, the price adjustment had a $40 million negative impact on revenue in the third quarter, or roughly $0.055 per share.Despite generating minimal attributable earnings, we had a strong operational quarter and generated $141 million in cash flow from operations. Operating cash flow before working capital adjustments was $84 million or $0.11 per share. Third quarter capital expenditures on a cash basis were $174 million, bringing the total of the first 3 quarters to $518 million in the significant investment year. Lastly, our Board of Directors approved our regular $0.03 per share quarterly dividend.We ended the quarter in a strong financial position, with approximately $1.5 billion in cash, net cash of over $1 billion and an undrawn $350 million revolver for a total liquidity position of $1.8 billion. Our cash position has not changed significantly during the quarter, despite investing over $170 million in property, plant and equipment and paying $17 million in shareholder dividends. As Marie indicated earlier, we remain disciplined and consistent in our allocation of capital to create shareholder value. Subsequent to quarter end, we announced that our revolving credit facility has been increased to $550 million. We sought the increased capacity as part of our accretive management of debt and cash position, while maintaining a flexible balance sheet to be able to move quickly on growth opportunities. The last tranche of our high-yield notes, issued to fund in part our acquisition of Candelaria, is callable on November 1. We have provided notice that we will call on these 7.875% senior secured notes. There is currently a principal amount of $420 million outstanding callable at 103.938%. Once completed, the net result of both initiatives will be a significant reduction in interest, while we maintain a strong liquidity position of approximately $1.6 billion.I will now turn the call back to Marie to provide an update on our operations and projects.
Thank you, Jinhee. Moving on to our operations. At Candelaria, we are well on track to achieve and have reiterated our full year cash costs and production guidance, having a lower end of the production guidance range. We have produced over 35,000 tonnes of copper at a cash cost of $1.64 per pound in the quarter, the best quarter at Candelaria so far this year. Over the first 3 quarters, we've produced nearly 102,000 tonnes of copper at a cash cost of $1.69 per pound, both in line with our full year guidance.Mill throughput of 7.2 million tonnes modestly exceeded our plan for the quarter, as did the average copper head grade, both increasing quarter-over-quarter. In the open pit waste stripping advanced well, the new equipment and the contractor performance led to increased mining rates compared to the first half of the year. We mined a total of 22.5 million tonnes of waste in open pit, bringing the total waste movement for the first 3 quarters to 55 million tonnes and on pace to achieve the targeted 74 million tonnes. As several of our analysts would have seen during our September visit, underground production from Candelaria Norte continues to ramp up well. In the third quarter, we achieved an average of approximately 9,700 tonnes per day, up 8% from last quarter and another new production record. Year-to-date, ore production from Candelaria Norte has been 17% greater than we originally planned. Similarly, the development of the Candelaria South sector continues to progress well and is on schedule and on budget to contribute to copper production in the second half of 2019 at the targeted production rate of 4,000 kilotons per day -- sorry, 4,000 tonnes per day. We are continuing with studies for further optimization of Candelaria North and South during the -- including the potential to increase beyond the currently permit limited 40,000 tonnes per day.After a slower start in the beginning of the year, delivery of the pit equipment has been excellent. 38 new pieces of equipment have arrived at site. The Mill Optimization Project is progressing on track for completion by the end of 2019. Greater than 95% of the mill component orders have been placed, and just over 30% of the construction work has been completed to date. The 2018 expected CapEx spend has been reduced to $20 million from $30 million, and this is deferral of timing on certain aspects into 2019. The Mill Optimization Project is comprised of several smaller mill improvement initiatives, and a physical construction of the initiatives are being undertaken during our regular maintenance downtime, so as to not impact the production.Moving to Slide 10. We released our Mineral Reserve and Resource estimates in early September for all assets. This update included significant increases to the reserves and resource estimates for all underground mines and the open pit at Candelaria. This slide illustrates the exploration success we've been able to achieve at Candelaria, providing the basis for increased life-of-mine and improved overall production profile. Contained copper and mineral reserves was 62% greater at the end of this June than at the date of acquisition in 2014. If you include the reserves we mined out over the last few years, we've been able to double the estimated contained copper reserves since acquisition. The additions have come primarily through targeted drilling programs. I believe this demonstrates the excellent return on the roughly $100 million we invested in exploration since acquisition.Other additions result from significant operating improvements the team has been able to achieve that have enabled us to reduce cut-off grades. We intend to provide an updated technical report to the market on Candelaria in connection with our annual operational outlook release planned for late November. Neves-Corvo delivered another quarter of strong operating performance, producing over 11,700 tonnes of copper and 18,900 tonnes of zinc at a cash cost of $1.48 per pound copper. Head grades were lower quarter-over-quarter as planned and mine productivity and mill throughput all contributed to excellent operational performance. Year-to-date copper production has already exceeded last year's total production. As mentioned previously, cash costs increased compared to the first 2 quarters of the year. This is driven by lower zinc prices and consequently, a lower by-product credit. Mine, mill and administrative costs were as planned on a unit process basis. The Zinc Expansion Project advanced during the quarter, with major construction activities underway underground and on surface. However, overall construction progress continues to be impacted by contractor performance both on surface and underground. We will be undertaking a third-party review of the schedule and cost. The slower than originally anticipated construction progress will result in the deferral of the ramp-up of additional zinc production from 2019 to 2020. We will provide an updated 3-year guidance outlook with our annual operational outlook in late November. Commissioning and operational readiness planning is underway. The 2018 project capital expenditure guidance has been revised downwards, $110 million from $130 million, to reflect the deferral of some surface and underground expenditures into next year. The total project's capital cost estimate of EUR 270 million is under review as mentioned. A little more detail on the progress we've made. Roughly 40% of the major equipment deliveries have been received, with all equipment expected to be received on schedule. The SAG mill building and flotation building concrete is advancing. The SAG mill building structural steel erection is expected to be this quarter.Major structural steel fabrication is 80% complete and deliveries are well underway. Mechanical and piping contracts have been awarded, and the work has commenced. Underground development news: work on the crushed ore storage silo has commenced as has the assembly of conveyors.Moving on to Eagle. Eagle performed well in the third quarter, with production of nickel and copper slightly above plan on throughput and grade. The operation is on track to achieve the full year guidance. We have moved up the guidance for copper and nickel production. We produced nearly 4,700 tonnes of nickel and 5,200 tonnes of copper at a cash cost of $0.87 per pound nickel in the third quarter.The outlook for the remainder of the year is very much consistent with the plan. Nickel head grade is expected to decline in the fourth quarter and more generally as the mine life progresses and before Eagle East comes online. The fourth quarter cash cost is expected to increase on the lower nickel head grades and lower by-product copper price assumptions. However, actual operating costs per tonne mined and milled are expected to remain consistent with recent performance. Operating margins remain excellent at Eagle, despite realizing sub-$6 nickel. The Eagle East project continues to make excellent progress. And we continued to advance well ahead of schedule and on budget for first ore in early 2020. Access ramp developments spiraling down to Eagle East orebody continues. Development advance rates continue to achieve better than plan. And this week, we received the approval for the amended permit for the additional tailing storage for the Eagle East ore at the Humboldt pit. We also remain active in exploration at Eagle. Four surface rigs were turning in the quarter, testing near-mine targets. A seismic survey was completed for areas outside of Eagle Mine, and results are pending to target additional drilling.Closer look at Eagle East. This long section illustrates the ramp development progress at Eagle East. From underground stations to definition and step-out drilling to better define the edges of the orebody commenced late in the second quarter. A second phase, approximately 10,000 meters, of definition drilling is going to begin in November. And this will extend through the second quarter of 2019 to test for possible extensions of the Eagle East mineralization, mostly to the West.And lastly moving on to Zinkgruvan. At Zinkgruvan, we produced over 17,000 tonnes of zinc and 5,500 tonnes of lead at a cash cost of $0.35 per pound zinc in the quarter. Full year cash costs guidance has been reduced to $0.40 from $0.45 on the year-to-date performance. We have lowered Zinkgruvan's full year zinc production guidance range to 74,000 to 76,000 tonnes, from 76,000 to 79,000 tonnes. Our head grades continued to be hampered for much of the third quarter due to a combination of our mine sequencing and low zinc ore availability in the summer as well as by higher-than-planned dilution and ore loss. Mine, mill, geology and technical services teams continue to meet weekly to address the head grade issue, with improvements demonstrated in early Q3, and grades have returned to forecast in September. Grade control has been the biggest issue in delivering head grade to the mill year-to-date and the mine method adjustments and supervision will remain a focus for us going forward. We had an active quarter on the exploration front, completing over 8,800 meters of drilling from surface and underground. In our updated Mineral Resource estimates in early September, a new Dalby area 5.8 million tonne inferred resource was announced. Further exploration and infill drilling from surface and underground will continue on Dalby for the remainder of 2018 and throughout 2019, with this area being our highest priority. The deposit mineralization is open in several directions and study work has commenced. This slide sums our capital expenditure guidance. As I have highlighted in the operational discussion, capital expenditure guidance as the year has progressed has been reduced by $45 million to $750 million. And this reduction is due to the deferral or later timing of payments. Most of the things on this slide have been discussed already. I might want to highlight that Neves-Corvo's sustaining capital forecast has been reduced by $10 million. And this is a timing-related issue and it's dependent upon the timing and delivery of the mobile equipment at the mine. The expenditure could still occur this year, although I believe it's more likely to occur in 2019. That sums up the production and operational guidance. On Slide 20, we have the 3-year production outlook. And as we look ahead at our own assets and reflect on the investments we are making now, they set us up very well for multiple years of production growth and decreasing cash costs. We're guiding over 15% growth in attributable copper production from our current assets between this year and 2020, and this is primarily on the improved Candelaria life-of-mine plan. We aim to improve upon this. Attributable copper production is expected to increase beyond the 2020 level with the investment initiatives at Candelaria and with higher grades from Eagle East. The nearly 60% increase in total zinc production is expected over the same period once the Zinc Expansion Project at Neves-Corvo is fully ramped up, doubling the zinc production from that asset. The slower time line than we originally had anticipated for the construction progress is expected to defer a portion of the 2019 zinc production growth shown in this outlook. We're reviewing the schedule and detailed plans now, and we will provide detailed guidance for 2019 as part of our annual operational outlook in late November. Nickel production is expected to decline modestly next year before Eagle East comes online. But production levels are expected to increase beyond the 2020 13,000 to 16,000 guidance range in 2021 and 2022, when the higher grades at Eagle East are being mined. Investment in exploration at each of our mines continues to be successful in extending mine lives, improving production profiles and creating value through drilling programs. We're well positioned to outperform in the years ahead with our current assets. And now, operator, I would like to open the lines for questions. Thank you.
[Operator Instructions] And our first question comes from the line of Orest Wowkodaw from Scotiabank.
Marie, I was curious. I mean, given what's happened in the market and given the -- your balance sheet position, is there any chance you might step in and just start buying back your stock here below $5 a share? I mean, that might seem to be a pretty good use of cash, in my view.
Yes, I think it's no secret I haven't been a great fan of buybacks historically, Orest. But looking at where our stock price has gone, let's say, it's moved a little further up in the capital allocation decision tree than it was before. I mean, over the last months, probably a month ago today actually, we were trading above $7. And now yesterday, it was $4.85. So there's no way that our assets have declined in value $1.2 billion in the last month. So we're really oversold, and we'll look at all options now.
Is that something you could potentially move on sooner rather than later or do you have to get the debt repurchase out of the way, kind of, before you can move on anything with respect to capital?
Well, I don't think the 2 are related. We've already given notice under the indenture that we will be calling the debt. So it's just a matter of going through the process of looking at it, making sure that our board has signed off and allocating the capital. So I mean, it's something that we'll be looking at. I'm not saying we're going to run out and do it, but it definitely looks more attractive now than it did a month ago.
Our next question comes from the line of Oscar Cabrera from CIBC.
Marie, if we can just stay on the capital allocation of the company. Could you share with us what your main priorities are, as you see the market evolving to -- from like synchronized growth at the beginning of the year to now? I think people are expecting a significant slowdown over the next couple years?
Yes. I'm not sure. I think that's a bit overdone to be honest, Oscar. I mean, we had an update at LME, of course. And then more recently, just now to the company, we had one of the competitor banks come in and give us their view. And we don't see why the market is so negative on copper and zinc pricing in the future. I mean, there are some headwinds that we see, but it seems to be a bit overdone. And the resource space is definitely oversold right now. Our mines are good cash flowing. So we will continue to be generating cash flow. We had a big CapEx year this year at Candelaria. We do have some investment at Neves-Corvo, but we're a good cash flowing company. So -- and we don't have any debt after we pay back these bonds. So we're going to continue to look for growth opportunities. We think that that is important to do, whether we're in a down-cycle or an up-cycle. We continue to look at our options for growing. And our growth traditionally is acquisition, and we'll continue to do that.
Okay. So if I interpret that correctly, your main priority continues to be looking at growth opportunities, and then, say, returning cash to shareholders or organic growth?
Yes, that's correct. I think the organic growth that we have, we've acted on. And you can see it in our do-nothing growth profile that we had on the second last slide.
Yes, that's great. Then if I may, on Neves-Corvo, what are the things or what are the problems? You have described what the unions were trying to achieve in Portugal. But do you have an update? And do you have an estimate of how much this could impact the development CapEx for the project?
Yes. So just to be clear, the delay in the construction of the ZEP doesn't have anything to do with any union activity. It was more a contractor performance issue. So when we started the project, the view was that the underground would be the critical path. Now the surface facilities are the critical path. And a few things during the summer, we had extreme high temperatures in August, which prevented us -- we had to do some stand-downs because it just wasn't safe working conditions on surface. We did set up some temporary chillers, but they were delayed. And in the underground, so the temperatures were just too hot. And then we did have some poor performance, particularly on the foundation for the mill. And the contractors did not perform particularly well, so that has set us back as well. So the surface construction will be the critical path. There's no labor issues, just poor performance. And we're looking at a bit of a delay there. So we're reviewing the schedule. And the reason I cautioned on the cost is that you can see we've pushed -- at the beginning of the year, we thought we would spend $190 million this year on Zinc Expansion. Now we're seeing $110 million. So we've deferred $80 million of CapEx into next year. That's affecting the schedule. And of course, I've never seen a project get an extended schedule and that not affect the budget. So we are reviewing the budget now too. I don't have an estimate, but we will have one by the end of November when we release our guidance.
Okay, thank you for the clarification, Marie. But just in terms of the contracts, do you have any plans there? Are there alternatives? Can you bring people from outside of the region to correct what's been going on?
Yes, I guess we had done some of that. We have had -- we've just changed the leadership on the project. We have brought in a new project manager. He started last week. So we think that was some better contract management. The contractor management probably could be improved. And if we're able to do that, we'll have better results.
Our next question comes from the line of Lawson Winder from Bank of America Merrill Lynch.
Maybe just again on capital allocation, if we could revisit the M&A theme. I think it would be really helpful if you just kind of comment on what you're seeing in the M&A market today versus, say, back in early 2018 when you decided to start moving more seriously on Nevsun. And maybe in your answer, you could just kind of consider a couple of factors. So one would be number of assets available; maybe the price expectations of sellers; the type of competition you're seeing in the market, particularly more recently, with commodity prices down; and then also the quality of assets. Have you seen any new assets come to the market that you would say are of a suitable quality for Lundin?
Okay. That's a comprehensive one. I'll try to hit all the highlights here. We have been actively out in the market. As you know, we hired a new Senior Vice President of Corporate Development. And he's been hitting The Street pretty hard, meeting with other corporates as well as a number of banks, just to try to generate some ideas. And we have seen particularly or probably about a month ago, there's a lot more buoyancy in the market and a lot of people more willing to start to have discussions. There are a few assets out there that have been for sale, and people know who they are and there's lots of rumors about people buying them. We've looked at -- and chances are if there's a rumor on The Street that the asset's for sale, then we probably would have looked at it. And many of those, we've passed on. We feel that in terms of price, price has always been fully priced for an operating copper mine, which is what we were targeting. The competition will vary depending on the jurisdiction. We get a lot of questions about the Chinese and whether we're cautious about the Chinese competing. I think that will be dependent on jurisdiction. And we'll see competition in selected regions where there is a greater socioeconomic strategy at play. So we are aware of that, but there are a lot of jurisdictions where we don't feel that an issue. The majors are looking for more copper, that's no secret. But we feel that we're playing in a little bit of a different space than they are. They're looking for clearly the Tier 1 assets. We're looking for good quality assets that can become our next Candelaria. So in terms of quality, there's a few interesting things out there. There's a few interesting things that are while I would say fully priced and don't give us much upside, but look interesting if they were more reasonably priced. But we will continue to look. And maybe some of this current market activity will open up some opportunities for us.
Our next question comes from the line of Stefan Ioannou from Cormark Securities.
Most of my questions have been answered here. But just in the release, you mentioned that just the lack of rigs available for exploration. Is that sort of across all 4 main operations? Or is there one in particular where you're finding it difficult to get rigs? And I guess is that exploration that just assumes it will just sort of get pushed into 2019 when you can get the rigs to do it?
Yes, so mostly I think that reference was to Zinkgruvan, and we did have trouble getting rigs there earlier in the year. But that seems to have alleviated. Europe has been a bit strange in terms of being able to mobilize rigs. Peter, I don't know if you wanted to comment at all on that.
No, I think you've hit the high point there.
Yes, so there was earlier in the year some difficulty getting some rigs to Zinkgruvan, but that's resolved now.
Okay, great. And just you mentioned Dalby a couple driven. Just curious, obviously, you plan to drill more there. The deposit's open. Do you think like with another year of drilling, you'll be in a position to expand the resource there? Or like what's sort of the timing on that to really define the blob, if you will, in terms of resource?
Yes, I guess the critical thing with Dalby is that we were generating a resource there in order to apply for our mining permit, because right now, it's an exploitation permit. So in order to apply for that mining permit and be able to bring it into the mine plan, we have to apply for the mining permit as opposed to exploration. So that was the motivation to get that inferred resource up. So we'll continue to do a lot of drilling at Zinkgruvan over the next year, more in the budget expected than there was this year. And not just Dalby, but a number of other areas we're drilling. And the orebodies that we're currently mining in also have extension possibilities. So we should be able to do some good things at Zinkgruvan next year.
[Operator Instructions] Our next question comes from the line of Matthew Fields from Bank of America Merrill Lynch.
Marie, thanks for your clarity on Lawson's question on M&A. Just more generally maybe, Paul had often talked about in the past about sort of criteria for M&A: good jurisdictions; preference for operating assets versus development assets; preference for copper versus precious metals. Would you say your criteria are the same? Or kind of is there any tweak to that to fit to those criteria?
Yes. Our criteria, largely, has not changed. And we'll continue to pursue similar acquisitions. I think one thing that may have changed is our time line where we may be a little more generous with the time line. We used to say it had to be meaningful within a 3- to 5-year time frame. We could extend that out by a couple of years. But we still can't afford to spend $1 billion on something and then not have it do anything for us for the next 10 years. That's not what we're after.
Would you be willing to be a minority partner in something? Or do you have to have majority and operational control?
We don't have to have majority and operational control, but what we do have to have is a seat at the table and a way to see through to getting our money back, because some of the partnership agreements that are coming up now are not partnership agreements. They're essentially smelter partner agreements, and that's not for us. We don't have smelters that we need to feed, so that's not our primary goal. We need to see how we share in the cash flows, how we have a guarantee to get our investment back and have a seat at the table on major decision making. So if there were those types of contracts, I think they're far and few between in the mining industry right now. They do exist in the oil industry, but I'm seeing very few of them in mining.
Okay. And then I just want to comment that it's interesting that we see a mining company lever up to buy an asset and 4 years later, all the debt has gone. So very sad to see the bonds go away, and I'll have to stop covering you. So I hope you buy something soon and issue more debt.
Okay, we'll try. I mean, it would be nice to repeat that. We like to acquire, repay, repeat. So that's what we're hoping for. So we hope our bondholders won't forget about us, and we can come back to market.
Our next question comes from the line of George Topping from Industrial Alliance.
Just a couple of minor questions left. On the Zinc Expansion Project, if the third-party review points towards negligence, are you able to levy penalties against the contractor?
Well, I wouldn't make that jump. I think this is more for our internal comfort that we have the right numbers when we come to the market at the end of the month. There are penalties and incentives in certain contracts and we'll look to enforce those. But I wouldn't jump to negligence. I think if there's any of that, we didn't do a great job of managing our contractors, so I think there's a contributory factor there that we are now in the process of correcting and we'll be moving forward on that basis.
Right, I see. And then secondly, just minor on Zinkgruvan zinc grades. They are lower than the prior year, but pretty much in line with the previous quarters. Are you expecting through the -- reducing the dilution to get those back up to the 7% for copper -- for zinc side?
Yes, so we did have quite a bit of dilution early in the third quarter. We had some sequencing, but also, we found there were areas of the hanging wall that were failing in the stopes and we had waste coming in with the ores. So what we've done is try to address this with some increased cable bolting and modifying our drill and blast. And we've seen an improvement later in the third quarter. Peter, I don't know if you want to add anything there.
Yes, September was a good month, and so we've seen improvements in our grades and less dilution.
Right. So next quarter, could we look to having it in line with the previous year, that type of increase?
Well, I think follow our guidance and you can probably back-calculate it.
Our next question comes from the line of Ralph Profiti from Eight Capital.
Marie, in this upcoming Candelaria technical report, can you maybe discuss what we're going to see in terms of the long-term assumptions around power costs and power rates in the country? And maybe talk a little bit about sort of the dynamics you're expecting sort of 3 to 5 years out?
Sure, no problem. This -- the power costs were a very good win for us. We had an original power contract that expired in 2022. And we've been working on renegotiating that contract because of the oil prices right now that we're hoping to be able to capitalize on sooner rather than later. We were able to agree with the current provider to start to bring forward the savings by entering into a new long-term agreement. So our current power costs are around $0.11 per kilowatt hour. And then when we go to a new contract, we've been able to negotiate with them a $0.04, $0.045 to $0.05 per kilowatt hour on the power itself. And then with the delivery charges and transition all in there, it will be about $0.07 per kilowatt hour. So that will be a considerable saving, so that will be reflected in the technical report. Looking at the La Española, we are looking at bringing that into the mine plan. Because that will require some permitting in order to do that, we're looking at not having that come in until about 2024.
Got it, okay. And just on a completely different topic, the issue of provisional pricing adjustments, right. It tends to whipsaw and have some critical significant quarter-over-quarter changes. Any thoughts to doing what some of the other producers, which is taking -- offsetting hedge positions into the quarter, at the end of the quarter, to kind of minimize the impact? Is that being talked about?
It's -- we looked at the hedging from time to time. I think what you do in that is that you delay your provisional pricing 1 quarter. And then it just kind of evens itself out. Jinhee, I don't know if you want to comment on that. It hasn't looked compelling, let's say that.
Yes. No, I would agree. We have looked at it from time to time. But until it becomes more compelling, I think we'll just leave our strategy as is.
Our next question comes from the line of Dalton Baretto from Canaccord.
Marie, what's the game plan with regards to Nevsun should Zijin not get all its approvals by the time your bid expires? Will you extend it?
Our expire -- our bid will expire on November 9 and we plan to let it expire.
Okay. So there's no plan to extend it by 10 days and keep extending it, should the approvals not come through?
No, we do not have that plan.
Okay. And then maybe one question related to one that was asked earlier. Given what's happened in the public markets and you -- we talked about all resources being oversold, are you spending more time looking at potential public market transactions as opposed to asset purchases?
We've been looking at both. And I think where we are now, what we're hoping won't happen is that because the capital markets have been so oversold on mining space, that people become unwilling to sell because of the deep discounts. We actually liked it when we had copper in that $2.80 to $3 range, because we weren't at the bottom of the market. You find that people do not want to transact on an asset that they have at the bottom of the market. Nobody wants to sell. So I think it will be a little bit more difficult to do that type of transaction, unless we use our shares when the valuations are so low. So we'll continue to look at both. And I think we can't be fussy. If there's a good asset that comes up, we want to act upon it. Operator, one more question.
Our final question today comes from the line of Orest Wowkodaw from Scotiabank.
Marie, I'm just curious if -- as part of the M&A criteria, you talked earlier about maybe relaxing the time line to production for something. But I'm just curious on the cost position, whether you may show more flexibility on where an asset sits on the cost curve, whether you're willing to look at third-quartile assets now. And then I was also curious on just your ongoing SG&A costs. I mean they've really creep-ed up this year, from what we've seen run rates in the past. And I'm wondering where you think that might settle out moving forward here.
Sure, no problem. On the M&A question, we have looked at third-quartile assets. And whether we would act on one of those would depend on whether we see operating improvements that we can put into place or some kind of productivity or mine plan improvement that would make it look better. We definitely do not want a swing producer. So we do not want any fourth-quartile assets. But third-quartile, we'll look at those, and I think that's a possibility. On the G&A, we had a few unusual type items in the quarter. As you know, we had a CEO change and 2 senior vice presidents change. So we had a charge of about $5.6 million for the quarter for severance and retirement benefits. And it's about $6.3 million year-to-date. So that will hopefully not be repeating. And so we should see that calm down a little bit in terms of the G&A.
Okay. So do you think like $40 million a year is kind of a good run rate after this year? Just kind of what you -- close to what you did in '17?
Yes, probably we have more people than we did in '17. We had a hiring freeze, of course, for the 2 years before that, where we didn't hire anybody. And we definitely want to make sure we have good technical talent. So I would say $40 million to $45 million would be a reasonable number.
Thank you, everyone. And we'll see you next quarter.
This concludes today's conference call. You may now disconnect.