Ero Copper Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 2, 2024

There are 10 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the Aerocopar Second Quarter 2024 Operating and Financial Results Conference Call. As a reminder, all participants are in a listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.

Operator

You can submit a question in writing by using the form in the lower section of the webcast screen. I would now like to turn the conference over to Courtlyn Lee, Senior Vice President of Corporate Development, Investor Relations and Sustainability. Please go ahead.

Speaker 1

Thank you, operator. Good morning, and welcome to Arrow Copper's 2nd quarter earnings call. Our operating and financial results were released yesterday afternoon and are available on our website, as are our financial statements and MD and A for the 3 6 months ended June 30, 2024. On the call with me today are David Strang, ARO's Co Founder and Chief Executive Officer Maco DiFilippo, President and Chief Operating Officer and Wayne Dreyer, Chief Financial Officer. We will be making forward looking statements that involve risks and uncertainties from which actual results may differ materially.

Speaker 1

We would refer you to our most recent annual information form available on our website, SEDAR and EDGAR, for a discussion of the risk factors of our business and their potential impact on future performance. As a reminder, and unless otherwise noted, all amounts are in U. S. Dollars. I will now pass the call over to David Strang.

Speaker 2

Thank you, Courtney, and thank you, everyone, for joining us today. Before we discuss our Q2 results, I want to acknowledge what a challenging week this has been for our organization. As announced earlier this week, one of our colleagues at the Carriiba operations was fatally injured in an incident involving a light duty pickup truck on surface, and another of our colleagues remains in critical condition. We are providing our full support to the families and coworkers of the individuals involved during this incredibly difficult time. Out of respect for those affected, we do not plan to discuss the incident further.

Speaker 2

Safety is a non negotiable aspect of our operating philosophy, and we remain unwavering in our commitment to this mission. With that said, we will now turn our focus to discussing updates from our Q2. During the quarter, the Tucumã project was awarded its operational license and achieved 1st concentrate production at the end of June. In mid July, we achieved production of 1st salable copper concentrate at above design target concentrate grades. While Mako will discuss our ramp up schedule in greater detail, I can share that the Tucumã plant continues to perform well, and we remain on track to reach commercial production levels by the end of the Q3.

Speaker 2

As we advance towards doubling copper production next year, we continue to execute on our longer term growth strategy. These efforts were highlighted by the announcement last week that we signed a definitive earning agreement with Vale Base Metals on the Furnas Copper Project in the Carahajas mineral province. This agreement aligns with the terms outlined in our previously signed binding term sheet detailed in our press release on October 30, 2023. Earlier this year, we commenced baseline environmental studies, core relogging and validation programs at Furness in support of an inaugural NI43-1 hundred and one resource assessment, which we expect to publish later this year. In parallel, we have continued to compile and update the extensive work previously completed on the project by Vale, which includes significant metallurgical, geotechnical, environmental, process design and site planning studies.

Speaker 2

With the definitive agreement now in place, we expect to initiate our first exploration campaign later this year. Before I turn the call over to Mako and Wayne, I will touch briefly on our operating results at Caraiba and Javan Tina as well as financial results for the quarter. At Caraiba, we continue to see the benefit of our mill expansion completed late last year, reflected in quarterly throughputs with tons processed up 12.2% quarter on quarter and 17.9% compared to Q4 2023. This higher throughput volume offset slightly lower processed copper grades compared to the Q1, resulting in a 9.6% increase in copper production of 8,867 tons in concentrate. While we had success in catching up on development of high grade stopes at the Palar mine in April May, mining from these high grade stopes came later in the quarter than planned.

Speaker 2

And one high grade stope in particular experienced higher than planned dilution. When combined with lower milled grades at Vermeis due to mine sequencing and a higher proportion of mill feed from the Surbeam open pit, processed copper grades averaging 1.03% for the quarter. With respect to our C1 costs, we are starting to see the impact of persistent tightness in the copper concentrate market, which has led to some of the most favorable treatment in refining terms we have ever seen. Over the last several months, we capitalized on these dynamics by entering into longer term contracts with our copper concentrate customers. We secured a blending treatment charge of just over $5 per ton and a $0.05 refining charge on 100% of our consolidated copper production, including both Caraiba and Tucama from May through the end of the year.

Speaker 2

By comparison, our copper concentrate treatment and refining charges averaged nearly $80 per ton and $0.08 per pound from January through April of this year. The significant reduction in our treatment charges, as well as the strengthening of the dollar against the Brazilian reais contributed to lower copper C1 cash costs of $2.16 per pound of copper produced during the Q2. This decrease in unit operating costs coupled with copper prices that hit all time highs during the period drove increased gross profit margins at Cariba compared to the Q1. Our Argentina operations also saw another exceptional quarter with an expansion in gross profit margins during the Q2, reflecting a continuation of elevated grades and record gold prices, which have rallied even higher in the Q3. Gold production at Javan Tina was 16,555 ounces with tons processed up 6.9% quarter on quarter and gold grades continuing to trend above long term block model grades.

Speaker 2

As a result, unit operating costs remain below budget with C1 cash costs and all in sustaining costs coming in at 4.28 $8.42 respectively, per ounce of gold produced. The combination of solid production across our operations and strong market tailwinds resulted in 2nd quarter operating cash flow of $14,700,000 and adjusted EBITDA of $51,500,000 As we look to the second half of the year, we expect consolidated copper production to increase sequentially each quarter, driven largely by the ramp up at Tucumab. We also expect higher mines and process grades at cutting EBIT to result in higher production and contribute to lower unit operating costs in the second half of the year. While we are reaffirming all of our copper production cash cost guidance ranges, we are now guiding to the lower end of our copper production guidance range for Caribe. At Javan Tina, we expect mined and processed gold grades to remain above budget in the second half of the year based on channel sampling from development drives.

Speaker 2

While grades should remain elevated, they are projected to decrease relative to the Q2, leading to slightly lower production and higher unit costs in the second half compared to the first half of twenty twenty four. However, due to strong year to date operating cost performance, full year unit operating costs are now projected to be lower than we had originally budgeted. And we are reducing our full year gold C1 cash cost guidance by $100 to a range of $4.50 to $5.50 per ounce of gold produced. We are also lowering our all in sustaining cost guidance by $150 to a range of $900 to $1,000 per ounce of gold produced. I'll now pass the call to Mako, after which Wayne will provide more detail on our financial results.

Speaker 3

Thank you, and good morning, everyone. As David mentioned, the ramp up of Tucumã is advancing well. We successfully produced 1st concentrate in late June and by mid July, in line with our internal target dates, achieved a pivotal milestone of producing 1st salable copper concentrate. Our primary focus during this first phase of ramp up was to stabilize material flow rates throughout the process plant and produce a quality concentrate at near design recoveries. While early in our ramp up, we've been extremely pleased with the performance of the plant thus far.

Speaker 3

As noted previously, we've been able to achieve above design concentrate grades while maintaining recoveries. Transitioning into August, our primary priority will shift to steadily increasing throughput volumes while maintaining concentrate quality and recovery rates. Based on our performance to date, we are on the right track to achieve commercial production levels, which we define as 80% of design mill capacity and 80% of design recovery rates by the end of the 3rd quarter. On the mining side, we continue to make strong progress during the quarter, completing the mines pre strip phase in April well ahead of schedule. By the end of June, we had approximately 460,000 tons of ore sitting on our run of mine stockpile and another 44,000 tons grading above 2% copper blasted in the mine available for transport.

Speaker 3

Given the strong pace we've been able to maintain on mining rates as well as the early completion of pre stripping and the build of run of mine and crushed ore stockpiles, We've increased our capitalized ramp up expenditures guidance for Tucumã to reflect the additional 2.5 months of mining. Ancillary costs associated with the early run rates of our crushing conveyance and screening systems as well as costs associated with the now fully operational laboratory on-site. It is worth noting that Tucuman's growth CapEx guidance range update reflects a revised tax position, resulting in approximately $12,000,000 of capitalized taxes that have been deemed to be nonrecoverable. With the Tucumã construction complete and ramp up underway, we will be shifting the focus of our Tucumã engineering and project execution team to the Furnas project. Over the last few months, working closely with the valid base metals team, we've transferred approximately half of the 90,000 meters of historic drill core to our core logging facility in Parapuebla and commenced re logging, resampling and validation work programs.

Speaker 3

As David mentioned, we expect to publish a main resource estimate on the project incorporating this work later this year as well as kick off our Phase 1 drill program. At Cariba, shaft sinking is progressing on schedule to achieve our target depth of 600 meters by year end. During the quarter, we successfully connected the main shaft with the interface between the first and second raised bore legs and civil works for the 3rd raised bore leg of the shaft commenced on schedule. Raised boring of the 3rd leg is underway, and we expect to continue through year end. In parallel, we've continued to advance underground infrastructure in support of the deepening project, including development and underground support related to the shafts ore handling and conveyance systems as well as the underground crusher chamber.

Speaker 3

The project continues to remain on track for shaft handover to operations in Q4 of 2026. I will now turn the call to Wayne to discuss our financial results.

Speaker 4

Thank you, Marco. As Dave highlighted, our quarterly financial results reflect a combination of solid operating results and favorable market dynamics that drove an increase in gross profit margins across our operations. This resulted in higher adjusted EBITDA of $51,500,000 and adjusted net income attributable to the owners of the company of $18,600,000 or 0 point diluted basis when compared to the Q1 of 2024. The favorable market conditions we experienced during the Q2 included a strengthening of the U. S.

Speaker 4

Dollar against the real, causing the exchange rate to increase from $501,000,000 on March 31 to $5.55 on June 30. While this move has benefited our operating costs and capital expenditures, it resulted in non cash unrealized foreign exchange losses, primarily related to the translation of U. S. Dollar denominated intercompany debt in Brazil, for which the functional currency is the real. With respect to the cash settlement of foreign exchange derivatives, we recognized a loss of $1,000,000 for the quarter, but a net gain of $1,100,000 for the first half of the year.

Speaker 4

Our liquidity position at the end of the quarter remained strong at approximately 100 and $70,000,000 With construction of the Tucumã project now complete and production ramping up, our cash flow profile and liquidity position are expected to strengthen significantly through the second half of the year. With that, I'll pass the call back to David to share some closing thoughts.

Speaker 2

Thank you, Wayne, and everyone who joined the call today. Before we proceed to the Q and A session, extend my deepest gratitude to our teams in Brazil and Canada for their continued commitment and hard work in executing on both our operating plan and our organic growth strategy. In particular, I would like to thank Mako for his outstanding leadership on the senior management team in terms of moving the company forward in terms of getting Tucumab to where it is today. It's always a team effort and I certainly don't want to pick out one individual in particular, but I think at this point that is warranted. We are well positioned to achieve both record copper and gold production this year and look forward to continuing this growth journey over the coming quarters.

Speaker 2

Now I will hand the call back to the operator to open the line for questions.

Operator

Operator? We will now begin the question and answer session. Section of the webcast range. If there is insufficient time to respond, written questions management will respond by e mail in the coming days. The first question comes from Orest Wowkodaw with Scotiabank.

Operator

Please go ahead.

Speaker 5

Hi. Good morning, everybody. Congratulations on getting Tucumab to the finish line. I was wondering if we can get some a little bit more color in terms of how the ramp up is going for Mako specifically like what you're seeing in terms of recoveries and throughput in these early days?

Speaker 3

Thanks, Orest. Yes, look, I think it's probably a bit too early to talk specific details on recovery in concentrate grade. I guess, at a general level, given we're sort of a couple of weeks since we achieved saleable concentrate. But what I can tell you is that based on the fee grades that we're seeing, which as you can imagine during this first couple of weeks of ramp up here are low. Obviously, we want to save some of that extremely high grade material for when things are recoveries have improved and throughput rates are higher.

Speaker 3

But based on the grades that we've seen so far, I can say that our concentrate grades are quite a bit above what we were expecting if you look at the expectations in the feasibility curve. And our recovery rates are near design targets, so just slightly below given the grades that we're feeding at. In terms of throughput volumes, we've been able to steadily increase so far to about 40% to 50% of the design throughput capacity, which given the performance we're seeing on recovery and concentrate grades is a good sign. We're to put that into context, we're about halfway through to our 80% commercial production level in terms of mill throughput.

Speaker 5

That's impressive to hear. Just a question for Wayne around this on the accounting side. Should we expect no financials related to Tucumã until you reach that commercial production? Or should we be modeling effectively since the start of I guess the start of Q3? I'm just wondering how the Q3 is going to shape up from an accounting perspective.

Speaker 4

Sure. So, Orest, in the Q3, because we're now generating or expect to generate revenue with our first sales, we will be expensing some of the costs. That's the requirement under the new accounting guidelines that came in a few years ago. But until we hit commercial production, it's only a portion of those costs that ultimately get expensed. So and that's a direct ratio.

Speaker 4

So until we reach the 80% throughput and recovery, a portion of the costs will be expensed and a portion of the costs will be capitalized. And then as it relates to the mining costs in specifically, there all costs will go into inventory, all waste costs will be capitalized until we declare commercial production. So in essence, you will see some expenses against Tucumã in Q3, assuming we make obviously sales, which is our expectation. But it will be significantly less than obviously the steady state, which we would expect to see in Q4.

Speaker 5

Okay. And then one quick one, if I could, just on the big picture. So with Tucumor now ramping up, your free cash flow is going to significantly improve. Is the focus for 2025, is that going to be on deleveraging the balance sheet? Or should we expect expenditures to ramp up for exploration around furnace and other endeavors?

Speaker 2

Thanks, Horace. With regards to the second part of your question, with our commitments to Furnace, we don't expect our overall exploration budget to materially change from what it currently is. There may be some reallocation of some exploration from some other projects that we had been working on to Furnas. So we don't expect a big material change in exploration expenses with regards to that. But the focus is obviously to delever the balance sheet and that is going to be the prime focus of Wayne and his team as we move into 2025.

Speaker 5

Perfect. Thank you.

Operator

The next question comes from Bryce Adams with CIBC Capital Markets. Please go ahead.

Speaker 6

Thanks, David and team. I appreciate the update here today. First question is, can you confirm if there was a seismic event at Caribou late last week, like a small earthquake in the region? And then I don't want to I'm not trying to link it to the fatality, but were those two events distinctly separate from each other?

Speaker 3

Thanks, Bryce. This is Marco. Yes, look, the curve operations, like most active mining operations that are operating deep underground, has seismic events. We have a microseismic monitoring system that we has been in place since we started the company in 2017. The two events are completely unrelated.

Speaker 6

Okay. Thanks. That's where our

Speaker 4

initial assessment goes.

Speaker 6

Okay. Can you and so the seismic event, was it bigger than typical one or are there any impacts on-site from that?

Speaker 3

Yes, Bryce. Look, we did have a seismic event. I'd say that in terms of its magnitude, it was in line with our expectations and what we've seen historically. We did, as a matter of protocol, evacuate the mine temporarily so that our geotechnical team could do a full assessment of all operating levels, and we've returned to operations.

Speaker 6

Okay, thanks. Sticking with Kareba, you mentioned the high grade started to come through in late in Q2. What are your great expectations for the second half of the year? What's in that mine plan? And then how confident are you in that plan?

Speaker 2

So Bryce, you mean Tucomo, correct? You meant you said Carriba?

Speaker 6

Yes, I meant Carriba actually. Like the grades have been lower in the first half. I thought you mentioned there was some high grade very late in Q2?

Speaker 2

Yes, there was high grade. So as we mentioned in the Q1 call, we mine a combination of low and high grade stopes. The high grade stopes typically are 30% to 40% of our total stopes that we mine. And so when we get those, it's always about trying to make sure that we mine them as efficiently as possible and as carefully as possible. We ran into dilution in one of these super high grade stopes with some over break on one of those, so we didn't get the same grades as we were expecting.

Speaker 2

Typically, these high grade stopes can run anywhere between 3% 5% on average grade, and we have them scattered amongst our production for the rest of the year. Our expectation with respect to the rest of the year is that proportion of high grade stopes to low grade stopes leans more to the high grade stopes and hence the reason expectation of high grades will be coming

Speaker 6

through. All right. I appreciate that. That's all for me. Many thanks.

Operator

The next question comes from Dalton Barreto from Canaccord. Please go ahead.

Speaker 7

Thanks. Good morning, guys. And Dave, I agree with you, Mako. Great job on the Tucomo construction and ramp up here. I'm wondering if you're starting to think already about 2 years from now when the grades start to come off fairly significantly.

Speaker 7

And I'm just wondering what the thinking is there today around sort of backfilling that? Thanks.

Speaker 2

Thanks, Dalton. Thanks for taking away our happy moment and enjoying starting the mine up. Yes, we're already on top of that. We actually as you may or may not remember, for those who don't know the story as well, going back longer term, we do have an underground resource at Tucumã. It is contained in terms of a portion of that is contained in our resource estimates that you can find in our 40 three-1 101 report for the project.

Speaker 2

We have now mobilized the drill rigs to come back in. We're now, I believe in September, the rigs will be turning. And we're now in the process of continuing to drill and continue the drilling of the underground resource. Ideally, what we would be in a situation would be is by 2027, we want to reasonably aggressively drill the underground resource, is be in the position to start supplementing or replacing some of the lower grade material in the open pit with some higher grade material from the underground mine that we hope that will be able to be developed over that time period. It's early days with regards to that process, so I wouldn't be adjusting any models.

Speaker 2

But you did ask, and so this is the plan that we want to do in terms of the work here is start to work towards that development plan. So that's the best I can tell you right now. Probably in the Q4, end of the year, we'll be in a better position to start discussing how the results of the drill program are going.

Speaker 7

Thanks, Dave. And then just sticking with drill rigs here. I wonder if we can get an update on exploration in the Caraiba camp and if there's any change in strategy following some new personnel additions you've just made?

Speaker 2

Well, that was cryptic. For those who don't know, a gentleman named Mike Hocking has joined our team and to join Mike's team. For those who know Mike, he needs no introduction. For anybody who doesn't know Mike, Mike Hocking is one of the great up and coming geos in our business, and we're really, really happy that Mike has joined our team. Mike and the 2 Mike's are working with our team with regards to the exploration programs in and around Caraiba.

Speaker 2

We are working primarily in and around continuing to develop material in the Palah mine in and around the Project Honeypot. We continue to do work up in the Vermeus area with regards to continue to look at what we call the UG4 deposit type, which is a deposit that has been identified between Vermeos and Suriyama. And then, of course, we continue to do work, albeit at a lower rate than previous on nickel in the general district.

Speaker 7

Great. Thanks,

Speaker 6

Dan.

Operator

The next question comes from Gordon with Paradigm Capital. Please go ahead.

Speaker 5

Good morning, everyone. Can you just provide a little color on the current mining rates at Pilar versus Vermelos and how the grades are expected to compare through 2024?

Speaker 3

Yes, sure. So thanks for the question. I'd say what we're our target for the second half of the year at Pilar continues to be around the levels that we've been achieving through the first half, a bit higher here in Q2 and Q3 as we've increased some effort on development of additional stopes. We've been averaging close to 150,000 tons a month for Pilar and we expect those rates to increase here in Q3. We are seeing increases into Q3 and we expect those increases to continue into Q4 as well.

Speaker 3

So I'd say that the second half in terms of mining rates from Pilar are expected to increase. Rameos will be consistent in terms of its contribution to our plan. I'd say that the mining rate is a little bit different at Romeos. What you see in terms of mill throughput is what's transported to the plant. We are looking at ways to potentially increase those volumes in the second half of the year by adding additional transport shift given the performance that Vermeus has had to date.

Speaker 5

Okay. For the open pit, is it still reasonable to assume around 500,000 tons a year?

Speaker 3

Are you talking about the Serbian pit?

Speaker 6

Yes. That's right.

Speaker 3

No, we're mining about 800,000 tons a year from Serbian

Speaker 5

for the full year. Okay. Thank you very much. Switching over to Argentina, just looking at some of the veins that have been talked about in the past, how close or how far into the Matina and San Antonio veins are we now mining? And if you can comment on any drilling progress on these fronts?

Speaker 2

Yes, happy to. Santa Antonio has been the basis of operations for the last 4 or 5 years. So we're quite ways into it. And Matinia, we entered the Matinia vein last year. With respect to what we're seeing, and I'll just reiterate, I'm not sure if we went into any detail in the Q1 call.

Speaker 2

We have always known through the center of the San Antonio vein structure, particularly as it went to depth, that there were significantly higher grades. The zone isn't particularly wide. It's probably 30 to 40 meters wide. And we historically had maybe 4 or 5 holes of the total drill database that intersected that zone. What has come to pass as we've been mining is obviously that zone is due to resource calculations historically, particularly using the Kriging methodology, you top cut your gold grades.

Speaker 2

And so what we have now seen is that zone remains and has remained for the last 12 to 18 months consistent with regards to elevated grades against the historical resource and reserve estimate. So we now have a bit of some would call it a quandary, what do you do? From our perspective, we think it's not worth the time or the money to start drilling out the zone in more detail to try and upgrade the resource, but rather keep it as such and try and give as much guidance as we can from the development work that we do and then the sampling for that. So as we mentioned previously on the call today, we now have visibility through the end of the year from development drives and sampling of those development drives that we will continue to see these elevated grades at San Antonio through the end of the year. Exploration drilling continues both down dip and lateral extensions of the San Antonio vein, and we continue to see similar grades that we've released historically with regards to that work that we've done there.

Operator

The next question comes from Stefan Ioannou with Cormark Securities. Please go ahead.

Speaker 8

Yes, thanks very much. Most of my questions have been answered. Let me just circling back on Bryce's question about the grade at Cariba, the head grade being lower sort of for the first half of the year. Could you just to clarify, was that then an issue of dilution of the higher grade stopes or just getting into enough high grade stopes to bring the grade up?

Speaker 2

Yes. We ran into a couple of there's a couple of issues that happened. In the Q1, we got behind on some of the development. So we mined a high proportion of lower grade stopes to higher grade stopes during the Q1, and that was the problem there. We've subsequently worked on that with regards to accelerating our development work and are getting back on schedule with regards to that.

Speaker 2

However, as we were mining some of the higher grade stopes in the 2nd quarter, one in particular, which was a quite important stope for us in the 2nd quarter, We encountered some over break, some significant over break with regards to some of the work that we did there and that result in dilution of the stope. Bear in mind, when we start getting into grades, the 4%, 5%, 6%, that material becomes quite friable And some of the wall rock surrounding it remains that way as well. So when we do get into these very high areas, as much as we try to be as careful as we can be with regards to our blocking patterns, etcetera, on occasion, not all the time, on occasion, we will see over break occurring and dilution occur. Now the interesting thing about it, the dilution was actually coming in around about 1.2 percent copper. So it was still reasonable copper grades, but our expectation on that stope was to have grades significantly higher coming into the mill than that lower grade.

Speaker 2

So ultimately, we will recover all of that copper material. Unfortunately, it's just not going to be at the same highest grade as we expected to come out in the Q2. As we've gone into the Q3, we have seen some of the stopes that we've targeted in terms of higher grade come into production. In general, we've had a pretty good start to the Q3, albeit with regards to the accident last week. We did shut operations for 3 days as a result of the investigation, but also with respect to the families and allowing our workforce to attend the funeral of our colleague.

Speaker 2

So we've had a reasonably good start to the Q3, and we expect August September to continue on track.

Speaker 8

Okay, great. That's super helpful. And then maybe just one sort of housekeeping question and my apologies I missed it. You mentioned the TCs are locked in kind of for the rest of the year down at like $5 a tonne. What was the number you said it was prior to that that you were sort of seeing?

Speaker 4

80.

Speaker 8

80. Okay, great. Thanks very much guys.

Speaker 2

Yes.

Operator

The next question comes from Galton Baretto from Canaccord. Please go ahead.

Speaker 7

Yes. Thanks for taking my follow-up guys. Dave, with the earn an agreement in Furnash now behind you, are you able to give us a sense in terms of broad strokes what this project looks like and then sort of time line to first production post the resource?

Speaker 2

Dalton, I'm going to allow the resource to speak for itself when we come out with it. In preparation of that, and hopefully, that resource comes out before next time that we all have a chat in terms of the quarterly is that we think that's a good starting off point. Vale has done a did a great job with regards to identifying and drilling out a very, very large area. And it's our job now to identify and take a slightly different approach from what they did. As you may or may not know, they took an approach of looking at from an open pit mine perspective.

Speaker 2

We see opportunity to look at Furnas as an underground mine. That requires us to do some more infill drilling on what we see as a very high grade zone in the center of the deposit as well as doing work in terms of extending the deposit to depth below the valley floor. So with respect to that, yes, I mean, we wouldn't have done this deal if we weren't excited about it. I don't think Valley would have done the deal with us had they not seen that we have something to bring to the project in terms of some of our underground mining experience. And I think the opportunity to work with Vale Base is a great one for us, and we hope this is being of a greater longer term relationship with the company.

Speaker 4

Okay, great. Thanks, Dave.

Operator

The next question comes from Ross Profiti with 8 Capital. Please go ahead.

Speaker 9

Thanks, operator. Wayne, the strategy around the Brazilian real, from the MD and A, you capped out at around 5.38 and this morning we're sitting at 5.7. Just wondering if the philosophy around hedging the currency was more to do with Tucumab or Kenya at this point, be maybe, say, financially opportunistic?

Speaker 4

Yes. Good observation. I think that the way you sort of couched it exactly that. I mean, the hedges we had in place were certainly front end weighted this year, and it really was to protect the significant capital spend. I think now that we're past that we will be a little bit more opportunistic.

Speaker 4

We're obviously seeing significant weakness here in the BRL. We do take advantage of that at times. And I would say that we will look to basically give ourselves a color that gives ourselves some downside protection, but gives us as much cap as possible so that we're not paying away. But obviously, at those kind of the kind of levels we're at today, the benefit that we see through our operating costs and our local costs on the ground are very, very significant. So we always look at that, we balance that out and then try and be opportunistic.

Speaker 4

So I think certainly going forward, I don't think you're going to see us have as heavier foreign exchange derivative program. It will be a little bit more opportunistic.

Speaker 9

Got you. Thank you. And just a quick follow-up. What's the grade of that stockpile at Tecuma? I believe you had that Crestor sort of early around the sequencing at around 440,000 tons at 2% copper.

Speaker 9

Just wondering what is the stockpile grade similar?

Speaker 3

All right. Just to clarify the number, it's 44,000 tons of 2% that's in the mine. The overall stockpile of 4 mixed in that 460,000 tons of mixed in that 460,000 tons of stockpile that's sitting in our run of mine yard.

Speaker 4

Is that clear?

Speaker 3

Yes. Yes. Thank you for that clarity. I appreciate it.

Operator

The next question comes from Orest Wowkodaw with Scotiabank. Please go ahead.

Speaker 5

Hi, thanks for taking it. Just a quick follow-up. I noticed that your total CapEx guidance is pretty much unchanged, but you did increase to Kuma by about $20,000,000 corresponding with a decline at Cariba of $20,000,000 Can you maybe speak to sort of what's driving the increase at Tucuma and then what you're cutting back at Cariba?

Speaker 3

Yes. Thanks, Orest. So maybe starting first with Tucumã. You pointed out obviously the one of the things that we've mentioned in terms of these tax the impact on the nonrecoverable taxes the taxes that we deem nonrecoverable, which is about $12,000,000 dollars There's additional $4,000,000 associated with the increase in capitalized ramp up, particularly around mining and some of the early work, the acceleration of mining that has continued into Q2 faster than we expected. And then the ancillary costs associated with that ramp up, which includes building, running our primary crusher, secondary crusher, tertiary crushering screening systems and getting our laboratory and running full capacity to support that increase in mining operations.

Speaker 3

So there's a few things that go into that $4,000,000 bucket, but that gets us to $16,000,000 We gave ourselves a bit of flexibility given the accounting treatment on the range that we increased. But we're feeling pretty confident with our overall capital assessment at Tucumã at this stage. In the at Cariba, the largest reduction in capital came from synergies associated with some of the tailings management that we do. So I think as you know, we use a co disposal system where we allow tailings to dry fully in our co disposal piles and then we move those dry tailings to a permanent storage facility. We had another project running in parallel associated with closure of our oxide heap leach pile and we've been able to recognize versus our budget a pretty significant savings in using that material from the dried tailings co disposal as the base for our oxide pile closure.

Speaker 3

So that's probably the biggest there's other items in there, of course, but the biggest single item is the synergies related to integrating those two projects, which we have worked on in the first half of the year.

Speaker 5

Thanks very

Operator

much. This concludes the question and answer session. I would like to turn the conference back over to David Strang for any closing remarks.

Speaker 2

Thank you, operator, and thanks to everybody for attending the call today. We really appreciate the questions and the detailed nature of them all. We look forward to seeing many of the analysts who are on the call today in September during our analyst visit, in which we will be visiting both Tucumã as well as Caraiba. And with that, we hope you all enjoy the rest of your summer and look forward to talking to you again in November on our Q3 earnings call. Thanks again.

Speaker 2

Thank you, operator.

Operator

This brings to an end today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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Earnings Conference Call
Ero Copper Q2 2024
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