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nevsun resources\' (nsu) ceo peter kukielski on q2 2017 results - earnings call transcript

by:KingKonree     2019-12-18
Limited resources for Nevsun. (NYSEMKT:NSU)
At 11: 00 a. m. on August 10, 2017, etexecuesheher Taylor-Q2 2017 Earnings Call
Peter Kukielski, investor relations manager-
President and Chief Executive Officer of Bourchier
Tom Whelan, chief operating officer
Matt Murphy, chief financial officer
Alidalton Barreto
Looking ahead to AdvisorsAli berries
Bradley Adrian Day
Adrian Dai Asset Management
Scott Craig Hutchinson
Stefan Ioannou, TD Securities-
Good morning ladies and gentlemen, welcome to the Second Quarter Results Conference Call and Webcast of Nevsun Resources 2017.
Now I want to transfer the call to Heather Taylor, investor relations manager.
Please continue, Heather.
Heather Taylor, thank you, operator.
Good Morning, everyone. Welcome to the second quarter earnings conference call and live webcast of Nevsun Resources 2017.
A press release last night announcing the company\'s financial performance was available on our website in nevsun. com.
We have also released our MD & A, our financial statements and A complete Bisha Technical Report, highlights Bisha\'s latest mine mineral reserves and related underground peas released on our website and SEDAR.
Before we begin, please note that unless otherwise stated, the information discussed today is the latest information as of June 30, 2017, except for the statement of mineral resources and reserves dated December 31, 2016.
Comments on today\'s phone may include forwarding-
View information about production, past and future financial results, and the potential generated by exploration projects and the company\'s strategic direction. Forward-
In terms of nature, it seems that the statement is uncertain, often but not always by words such as expectations, beliefs, and similar expressions or statements in which events, conditions, or results will appear to identify that can or should occur or be achieved.
Due to various risks, uncertainties and other factors, there may be significant differences between actual achievement or future events or conditions and expectations.
We encourage all listeners to read yesterday\'s press release carefully as well as the quarterly financial statements, the entire MD & A and our recent technical reports, all of which have been submitted on SEDAR and EDGAR, can also be found on our website.
All the financial figures mentioned today are in the United States. S. dollars.
Our host today is Peter Kukielski, President and CEO of Nevsun, chief operating officer Frazer Bourchier, chief financial officer Tom Whelan.
After we have officially concluded, we will chair an issue --and-answer period.
For those who want to ask questions in question --and-
During the answer, please make sure that you are dialed into the conference call as people listening through webcasts will not be able to ask questions.
Now, I want to transfer the call to Peter Kukielski. Peter?
Peter kukielski thanks Heather for joining this call this morning.
We released our financial results for the quarter last night and our operating results on July.
Let me simply say that I am pleased with the progress we have made in action Bisha and the progress we have made in the development of our timoke project in Serbia.
We believe that we have the ability to generate a large amount of free cash flow from Bisha for the rest of the current mine in Bisha.
This will be a key component of our broader strategy for Nevsun on the future development of our Timok Project in Serbia.
I decided to join Nevsun as an easy person.
This is a company with two big assets, talent and dedication.
Our board of directors, my colleagues in the senior management team and its headquarters, and our team in Ecuador and Serbia are truly high quality.
At Bisha, we have a proven reliable cash flow generator.
At Timok, we have a promising and exciting development project with potential for exploration.
This is supported by strong debt.
The free balance sheet and healthy cash position provide us with financial flexibility to achieve our project development and strategic growth aspirations.
Moving forward, my vision is clear, building a strong, multi-mine mid-
First-line mining companies offering long-term services
The term value of all stakeholders.
When I was CEO at Nevsun, the cornerstone of this vision was in place and today we will provide some insight into how we plan to achieve this.
To achieve these goals, we must address four key strategic challenges and opportunities.
First of all, we must allocate funds to our projects in an effective way.
Next, capital projects need to be delivered on time and on budget.
Therefore, we must maintain the social license operating in Serbia and Ecuador.
Finally, we need to continue to expand and diversify our asset base.
The capital allocation decision announced this quarter proves that our action plan is being implemented.
These measures include, first of all, the decision to allocate capital with the utmost care, a smaller open-air Mining in Bisha, with a shorter mine life.
Next, reset the schedule and deliver the PFS for Timok at the beginning of 2018 to complete the appropriate pre-levelEnd the project.
Each decision supports our most important strategic initiative, the current one being the development of Timok, where mining began in 2021.
While Timok offers us a great opportunity, it\'s not just this asset that we need to consider.
We need to consider how we can expand and diversify our asset base in a disciplined and measured manner.
Being open to opportunistic trading will be a potential means of our growth and diversity.
Finally, as a driving force for growth across the company, we will continue to invest cautiously in exploration.
In Serbia, we are excited about the exploration opportunities in our portfolio.
In the upper area of Timok, we see encouraging results.
As previously announced, additional capital has been allocated for extended exploration projects targeting new high-tech
Taste found near the surface.
There is also a lot of potential in the lower band, but the depth of mineralization provides some challenges that will result in us taking longer
Check the terms with our partners in Freeport.
Other early and small-scale projects south of Serbia and Macedonia will continue to assess their potential and exploration funds will be allocated on a disciplined basis.
In Bisha, we will complete our exploration plan for 2017 by assessing the high priority green space targets.
We have announced a large number of other targets in our large licensing area and I expect we will continue to look for regional exploration in 2018.
Within 20 kilometers of the existing factory, we have nearly 58 million tons of regional resources.
The time to convert regional resources into reserves is still long.
Using the existing factory infrastructure to achieve long-term target advertising is a reasonable commercial significance.
Later on the phone, I will return to the concluding remarks, but now let me transfer the call to Fraser bourchell for project and operational review. Frazer.
Thank you, Peter.
If any of you are watching the webcast and not just the audio of this presentation, the slides will provide some background and summary.
However, the point I am going to point out now will be more technical and I believe it is clear.
I would like to provide an update on Bisha and Timothy.
At Bisha, we have a better understanding of the variable ore minerals and chemical dynamics of the primary ore body of the Bisha main pit.
The recovery rate was improved through further test work, Operation observation and expert analysis.
Copper from about 20% to 60%, the average life of the mine is 70%.
The average zinc is 60-70%, and the average mine life is 77%.
The grade of copper and zinc concentrate is 17 to 18% and 41% to 43%, respectively.
The average life span was 20% and 50%, respectively.
We have good business terms for all centralized sales and Tom can fix this.
In order to increase overall confidence in the metallurgical assumptions described in the mineral reserves, a lot of work has been done and will continue.
These include the ongoing transformation of small processing plants, particle size measurement in the combined loop, quantitative mineral assessment, completion of process Hydrochemistry and analysis for easy mixing, process plant reagent test and more powerful ore grade control model.
Based on this extensive work, we expect near stability-state top-
Final results achieved at the latest in the medium term2018.
Let me discuss it now. and-a-
In yesterday\'s technical report, the life mineral reserves of the Bisha plus Harena mine as of December 31, 2016 were highlighted.
Taking into account all kinds of technical, operational and even social problems, mineral reserves are still a timely snapshot or an annual snapshot to get an optimized plan for mining the ore beds.
My schedule is based on a variety of metrics, including risk.
To name just a few, adjusted returns and social licensing of discounted cash flow, capital allocation, probability of success and operations.
Therefore, when two years ago, in the second half of 2015, I decided to suspend the ninth phase of the material movemente.
The larger than the initial push back of the sand pit, a large part of the material of the Phase 9 is retained in the mineral reserves in December 31, 2015.
If the external or internal cost dynamics become more favourable, and if the operational constraints change, thereby allowing the restoration of the larger cuts previously planned, this past option value decision is made.
We also decided to suspend Phase 9 Mining, which is ongoing while continuing the underground scoping work to better understand this interaction with the Bisha main pit, and further evaluate the best for recycling any or all of these materials
Therefore, after the completion of our updated Mineral Resources in March 2017, we started the mineral reserve work while continuing to have an in-depth understanding of the metallurgy of primary mineral deposits.
This reserve work also includes the assessment of the availability of mine equipment and future funding needs, as well as the completion of underground peas.
Then a decision was made in June to improve the work and continue with the smaller reserve reduction option, somewhat similar to the previous eighth phase of the cuts we mentioned in the past.
This shortens mine life from two to three years in a large pit scene, and now from today or four years to now --and-a-
For reasons stated earlier, half at the beginning of the year.
Of course, the upward trend remains, including the eventual transfer of underground materials to reserves, the transfer of reserves back into reserves by processing the boundary ore reserves, and the success of additional exploration.
But for now, none of this is included in the latest mineral reserves.
Of our recent additional $24 million and current $30 million, all 2017 sustained capital years have been approved, which, by the way, is nearly half of the remaining life of the Bisha Mine capital, $27 million for mobile replacement, and millions for additional processing plant improvements.
Over the next six months, we will explore alternatives with our partners in Ecuador, which can still bring some of the materials of Phase 9 back to reserve.
Finally, two cases were evaluated for underground peas.
First of all, Harena underground is an independent case.
In addition, along with a new smaller Bisha open-air reserve, it is under the Bisha.
Both projects outline the $30 million of NAVs from $50 million in Harena to Bisha.
But the current rate of return, when the risk-
Given the early nature of the work and the transition to a new mining method, it has not yet been adjusted to be worth a significant injection, such as a decline in exploration for any of the deposits.
Similarly, in the next six to eight months, discussions will continue with the state of Eritrea on what further work needs to be done to raise these peas to a viable level, while improving the initial economy and further reducing implementation
This includes further potential drilling and related technical assessments, as well as a review of the current cost structure in the country.
All in all, we have a highly executable in Bisha that can be said to be a bit conservative about my planned life cycle as well as the relevant processing schedule to the medium term
2021, even with $60 million in internal funding, this will generate healthy cash flow.
We are satisfied with the improvement of the metal recovery rate in primary ore and good sales business conditions, and believe that there is still an upward trend in the cost of VMS camps, with exploration potential, further assessment options were made for the underground. Now for Timok.
Especially in the early days, this gold mine still has a high grade.
It is located in a region with a long mining tradition, supported by local stakeholders in Serbia and governments at all levels.
I am particularly pleased that we are strengthening the project team in the national and corporate offices.
The encrypted drilling of the mineral resources update did not bring adverse surprises.
Mining and Metallurgical trade-
The research is in progress and has now expanded.
At this stage, we see the opportunity to achieve great value even with subtle changes and improvements.
This illustrates to some extent our corporate culture and why we strongly believe that advanced PFS is useful for our identification and locking-
Provide the best technology options while ensuring leadership
Before the feasibility study, terminal engineering was advanced.
I understand that some people may find this level of certainty more relevant to the feasibility study.
But industry experience suggests that ignoring details at an early stage can lead to subsequent significant capital overruns or irreversible business decisions.
For the decline in production, licensing is advanced and is expected to be awarded in the fall and construction is planned by the end of the year.
Other balance of project licensing is also in progress.
Land acquisition is still a priority and moving forward as per the internal plan, this work is being carried out in accordance with IFC standards.
Regulatory submissions related to the granting of various mining permits are also ongoing.
Additional greenfield exploration drilling is underway near the upper strip.
Any potential satellite deposits found as part of the program may not be included in PFS in early 2018.
However, this does not detract from the fact that this is an emerging camp with great exploration potential.
Working with our partners in Freeport, low-Zone drilling, while progressing slower than expected, will be completed within the year --
Complete other necessary internal submissions and external assessments in a timely manner at the end or beginning of 2018.
Although different opportunities are presented in depth compared to the upper region, the potential size and scale of the lower region provides an exciting opportunity for this timik project of the Cukaru Peki deposit
All in all, we are excited about our progress in Timok and look forward to these near
Project Catalyst.
First, an updated pea was delivered in October 2017.
Second, construction began to decline by the end of 2017.
Finally, a PFS was completed at 2018 in the first quarter.
Now, I want to transfer this call to Tom for a financial review. Tom?
Thanks to Fraser.
So let me first give a brief overview of our financial performance this quarter.
In the second quarter, we generated $66 in revenue.
1 million, of which sales of copper concentrate amounted to $26 million.
We posted a loss of $65.
$1 million, net loss of $70. 2 million.
Excluding the impact of $70 million.
I will explain in more detail later that we have incurred a $22 Cash Impairment fee this quarter.
According to the operating income of $4, 4 million of cash comes from operating activities. 7 million.
With the rise in commodity prices and the improvement in recovery in the second half of 2017, we expect Bisha to generate strong cash flow.
The mine is currently in its primary production phase.
Therefore, the future operating profit margin is expected to be lower, and the unit operating cost is expected to be higher than the super gene stage.
Overall, operating costs are higher due to waste movement, the second floating circuit and increased power demand.
Looking ahead, I would really like to focus on page 6 and page 7 of MD &.
There, we provide information in which we provide C1 cash cost guidance to reflect the improvements we expect in the second half of 2017 compared to the initial guidance.
Due to the low availability of mining equipment, additional mine operating costs offset more copper and less zinc in bulk.
As Fraser mentioned, we continue to benefit from the tension in the zinc concentrate market.
We sold all our zinc concentrate.
Digital treatment costs.
The C1 cash cost per pound of zinc and copper payable is estimated at $0. 70 to $0. 90 and $1. 55 to $1.
75, according to the current commodity prices of zinc and copper, respectively, ahead of the healthy profit margin.
It is also important to note that due to the tax protection provided by the zinc plant expansion we did in 2016, we do not expect to pay any additional income tax this year.
To help address Bisha\'s waste flow challenges, most of the $24 million capital expenditure announced yesterday for Bisha will be used to purchase heavy machinery equipment.
It is worth noting that this capital expenditure will be funded by cash flow generated within Bisha.
With the approval of the board of directors of Nevsun and BMSC, we expect two
The second half of this year will cost 30 pounds of capital, and most of the equipment is expected to be in-
The website was in early 2018.
As mentioned earlier, we recorded a $70 million impairment related to the revised Life mine plan in the second quarter.
The impairment amount is between $59 million.
Long-term inventory of materials that are no longer part of the mine plan is reduced, heavy machinery equipment and related capital stock supplies are reduced by $11 million, and these supplies no longer have service life.
As Fraser mentioned, I would like to stress again that if an economical metallurgical solution is found for boundary layer materials, this damage may be reversed in the future.
Finally, let me briefly summarize the financial situation of Nevsun.
As of this quarter, we had $0. 171 billion in cash on our balance sheet and no debt.
Bisha is still a reliable cash flow generator and we are working with our partner, ENAMCO, to find all the alternatives to extend mine life.
This Bisha cash flow plus cash on hand will be sufficient to fund ongoing research, declining production, and other work to drive Timothy to make building decisions.
Most importantly, we believe that the quality of Timothy\'s assets, coupled with the advantages of our overall financial position, allows us to flexibly consider a wide range of cross-cutting
As we are still on track for our first production in 2021, we will provide partial alternative funding.
In order to discuss alternatives to financing, we continue to receive inquiries on a regular basis.
We are very confident that we will be able to execute an optimal financing to maximize shareholder returns while minimizing corporate covenants, enables us to flexibly implement the strategic objectives outlined by Peter.
Now, I want to transfer the call to Peter for his final speech. Peter.
Thank you, Tom.
Thanks Fraser.
I think their statements provide greater clarity and support for the important decisions that we have announced today.
These decisions are made to help balance the need to maximize
While ensuring adequate funding for our growth programs, regular cash flow.
We believe that we have achieved a proper balance and focus on the task at hand.
As we move forward this year, we will continue to move forward with the project Timothy K, while optimizing and improving the operation of Bisha with a focus on improving the recovery rate.
Let me quickly summarize the future of Nevsun.
Starting with Timok, we will be offering the market an updated pea this fall.
While this is not a must, we believe this is an important interim step in helping the investment community improve its understanding of Timok.
This in turn will help you analyze and value these assets and Nevsun.
In the fourth quarter of this year, we expect to start a decline in construction in Timok.
The contract tender is under review and we expect the board to approve the work in the fall.
In early 2018, we plan to release a PFS for Timothy.
We have decided to consider all kinds of trade carefully.
A wide range of products including mining methods, metallurgical testing, capital cost estimation and marketing research, we are keen to ensure the lead
The terminal works were advanced enough before we made the construction decision.
This approach will provide greater certainty when we begin to consider Timok\'s various financing options.
In addition, we are continuing to develop our organizational structure and refine our project control and process systems to ensure that these controls and processes are in place before this significant capital investment is made.
Most importantly, the path we have chosen ensures that Timok\'s first production schedule remains at 2021.
At Bisha and Timothy, we will continue to invest in exploration and update the market based on the results.
We feel that both camps have exploration potential, and as I pointed out earlier, exploration success will be the key to supporting us for a longer period of time --
As a long-term growth target for a company.
Mainly, we have some upcoming catalysts that we think can be meaningful for the long term
Create value for all our stakeholders.
Finally, let me reiterate how excited I am when we move towards becoming a diversified goalmine mid-
Now we are happy to answer your question. Question-and-
Operation instructions].
The first question comes from Matt Murphy of Macquarie.
Matt, please continue.
Good morning Matt MurphyGood
My question is related to the prospect of recovery improvement in Bisha.
Just wondering if the expected level of improvement in copper and zinc recovery is related to the much higher grade you plan to process?
Thank you for your question, Matt.
I think that as we gain experience in materials and factories, the recovery rate is not a function of a higher level, but of incremental improvement.
But I can certainly ask Fraser if you would like to comment further.
Fraser bourkeyer. That\'s right.
Thank you, Matt.
In fact, as Peter said, the improvement in the recovery is due to the many different things that we are doing.
In fact, higher scores have no effect on help.
Sometimes higher scores can be somewhat unfavorable.
So this is more of a mineral problem than a feed grade problem.
In other words, it is related to minerals, not to our grades. Matt murphyok
So what I mean is that what I\'m trying to solve is what makes you believe that the very significant progress you\'re looking forward to, with only four years of life, time is crucial.
So I\'m just wondering if you can give any color where you can improve your confidence?
Yes, Fraser bulgemat.
So I\'m going to share, I mean, as you can see in copper recycling, the average recovery rate for the first quarter was 34%, the previous quarter was 52%, and it picked up to 58% in July alone.
Therefore, the recovery of copper has made steady progress over the past six months, and we pay more attention to this.
Zinc, although 67% in the first quarter, declined in the second quarter, partly at the price of copper focus, not because of the increase in copper, but copper only focuses on copper circuits.
In July, the past month was as high as 71%.
With three or four different projects and participating experts we are involved in, QPs are very confident in 70% and 77% of my remaining lives, respectively.
So I think between what I shared in my previous talk about the work being done and the recent progress in both areas, and even in the July figure I just quoted, we believe that the recovery rate of copper is 70% and the recovery rate of zinc is 77%, which is the expected target of the remaining average life of the mine. Matt murphyok
You said, the goal is to get there in the middle.
The latest 2018?
Fraser bourkeyer. That\'s right.
When I talk about giving the final result, we expect to stabilize in the medium term. 2018.
It is likely to happen earlier.
We have been close to this for a few months.
My average life span is definitely a firm belief, that is, the average life span. Matt murphyokThank you.
Thank you.
Your next question is from Dalton Barreto at Canaccord.
Dalton, please continue.
Dalton barretowood good morning
I would like to continue to discuss the topic of recovery in Bisha.
In the metallurgical sector, SRK read your technical report carefully, citing a study by ALS in 2014 that actually pointed out some of the problems that led to the pre-activation of zinc.
As Fraser said, this is a problem of minerals, but you also said cobalt, but the cobalt content in the copper field is also very high.
I would like to know, given that this is known in advance, how much work has been done before starting to try to resolve some of these issues?
Are these issues still being debated?
Fraser bourkeyer. That\'s right.
Dalton, this is Fraser.
That\'s what I can say.
The ALS Kamloops study done is correct.
It does identify some of these issues and correctly identify them.
In fact, we started working as early as 2015, and I think the bigger surprise for us may not be the so-called zinc pre-activation problem, which is the prevalence of it in different proportions of iron ore, we did not expect this to happen.
So this is a question that goes against why.
As I said, we started an expensive exercise program from the end of 2015, and since then our study has continued until 2016.
This resulted in the storage of ore materials at the boundary and the updating of the mineral deposit resource model.
Dalton BarritoGreat.
Then, maybe just talking about recycling, SRK also pointed out that when you store the ore, these new mines are likely to be at risk of some potential weathering?
How many places to pay attention to here?
Fraser bourkeyer. That\'s right.
This is what we call oxidation or aging.
This is one of the problems.
This is not a major issue for us, not the one we talked about before, and in addition to grinding size and water chemistry, secondary copper ions are also the focus of our attention.
This has also been demonstrated in our laboratory testing work in plant testing.
So if the aging problem is reflected, you can argue that is why we have now extracted the boundary material of the surface from the reserve.
On top of that, we tend to stay in the pit and the time from blasting to feeding it to the original stock to the factory is rather short.
That\'s why we don\'t believe that aging is a problem.
Dalton BarritoThanks Frazer.
Maybe I can switch the device quickly and ask Peter a quick question.
Peter, on Timothy, I know that the delay in PFS will provide more robust engineering as you move into the feasibility phase.
In terms of the peas to be launched in October, how should we look at the information it contains about PFS and how relevant it is?
Then there may be a second question.
From you, are you satisfied with the direction of project development?
How much has it changed?
Thanks Dalton.
So, from the point of view that one of these deliveries is the basic situation, the peas will be completely relevant.
Further metallurgical testing work is therefore being carried out, including a pilot plant that will produce some results.
But we made some assumptions about peas.
We are also conducting a peer review of mining methods and such things.
So all of this stuff will eventually be included in the direction we set during PFS.
But PEA will be based on a basic case that is completely relevant in that sense. Sorry.
Dalton barretinoGo ahead Peter.
With the extension of Timok\'s term, it looks like every new high management wants to make some changes.
We made some changes in Timok.
We have now begun to introduce more project management focus on the project, rather than the previous focus, that is, more definitions of ore bodies.
So we are building a team that is now able to focus on the project management aspect of the project rather than the early economic assessment.
We have arranged a project control manager.
We are very busy and we will hire a project director, so we will go into the execution mode instead of the defined mode before.
Nevertheless, there is still a long way to go to complete the PFS, but we think it is appropriate to start entering the execution mode now as the PFS expands.
So I am very satisfied with our way forward.
I think the key now is to put the right people in the right place and form a very solid but fairly strict project execution team.
Dalton\'s wedding
This is all for me. Thank you.
Thank you.
Your next question comes from potential consultant Albert Sebastian.
Please continue, Albert.
Good morning, gentlemen.
Good morning.
A few questions.
Can you provide an update on Timok debt financing?
Let Tom answer the question.
Tom whelanch Albert
Look, we\'re busy meeting anyone who wants to hear about where we are on the project.
I think this is very similar to what we did when we sold zinc concentrate.
It took us a few years to get to know everyone and understand the seriousness and interest of their work.
Again, but at this stage, we are many years away from any financing.
I suggest that once the PFS is over, we will begin to make more progress in a deeper dialogue.
But just say, with these high
There is a lot of interest in the achievements and the great projects we have at hand.
Peter kukielskyes.
Albert, this is Peter.
Since I arrived here, my inbox has been filled with interest from those who contacted us.
Albert Sebastian good
A few more questions.
Can you comment on dividend philosophy and policy?
Previous management had some fairly specific ideas about this.
In addition, there is a lot of cash on your balance sheet in terms of the diversity of your asset base.
But the cash on the balance sheet is a bit designated for the development of Timok, and it is clear that you do not have the documentation for further acquisitions given where your share price is.
So, given the current situation, I am trying to understand how you will diversify your asset base?
So what about dividends and diversity?
Peter KukielskiSure.
With regard to dividends, Albert, we believe that our shareholders believe that dividends are an important part of the company.
So we continue to pay dividends.
We re-evaluate from time to time what we think we should do, and we have considered this with the board and decided to continue paying dividends.
In terms of diversity, one of our vision is to become a diversified enterprise. mine mid-
First-line Mining Company
So when opportunities arise, we remain open to them and recognize that the main content of our strategy is to achieve Timok.
Of course, the view that we seize another opportunity is constrained by our strategy, but, that doesn\'t mean that we will close our eyes and not look at them when opportunities arise, because you never know what we will meet.
Albert Sebastian Ko
Let me ask the last question.
In terms of cash costs for zinc and copper, what might be the idea for these cash costs to exceed 2017?
Tom whelannabbert, I suggest that what we are guiding now is ---
Sorry, step back.
First, we only provide cash cost guidance every year.
But back to the technical report, we provide a lot of information about future capital and operating costs.
Unfortunately, with cash costs, you need to invest in things like treatment costs and the impact of by-product credit.
Therefore, I am reluctant to provide cash cost guidance for more than a year.
But I think there is enough information in the technical report for you to come up with your estimate.
Thank you, Albert Sebastian.
Thank you.
Your next question is Ali Berry from BlueCrest.
Ali, please continue. Ali BerryHi.
I have three questions. The long-
Ask you, can you assure us that you will not sink Timok Pister like you are now in the kitchen? sink Bisha?
Second, has the board considered the impact of stock prices on your recent steps, such as a summary of mineral reserves?
Third, do you better say that you are considering the risk return situation for the last four years and are discussing it with the government of Ecuador?
Have you considered this with the board?
If not, why not?
Peter KukielskiSorry Ali, you broke up on your first question.
Can you repeat your first question? Ali BerryYes.
The first question is, can you assure us that when you show up at the kitchen sink Bisha now, you will not have the kitchen sink Timok Pister?
Peter KukielskiI can assure you that we will not sink the Timothy kitchen. Ali BerryOkay.
Your second question, would you mind repeating your second question?
It has to do with stock prices. Ali BerryYes.
Have you and the board considered the impact of the steps you have taken recently on the stock price?
Is this probably the best summary through the reverse acquisition of Nevsun by Reservoir Minerals?
Of course, Peter KukielskiWe always considers the stock price and the decisions we make.
But at the same time, we have to make long-term decisions --
The term business health.
Ali, your third question? Thank you.
Thank you.
Your next question comes from Adrian Day at Adrian Asset Management.
Adrian, please continue. Adrian DayYes. Good afternoon.
My questions were answered to a certain extent, including the use of cash, the establishment of Timok and opportunistic acquisitions, and the exploration of brownfield.
But maybe you can give us a feeling of prioritisation, how important is it that you keep Timok\'s cash compared to the acquisition?
Obviously, it all depends on what kind of acquisition can be obtained, but in terms of your urgency or priorities, can you expand it a little?
Adrian, Peter kukelli, kugiles
Let me make it clear.
Our priority is to develop and finance Timok.
It certainly takes precedence over any potential acquisition.
This is clear. Adrian DayOkay.
Well, it\'s clear.
If you can, there\'s a second one.
Can you describe to us your partner\'s response to reducing mine life?
Did they participate in the discussion?
Do they agree?
Adrian, Peter kukelli, kugiles
Look, Bisha is a very, very important asset for our partner in Bisha, Ecuador.
The state supports capital investments needed for current reserves.
We have a long and successful relationship with ENAMCO and the government, and we continue to work with ENAMCO to find options to put additional resources into reserve.
That said, the current life of my plan was discussed in depth with ENAMCO.
As I said, in my current life, the capital is approved by the board of directors of Bisha Mining Corporation of ENAMCO.
So we certainly have and continue to have close discussions with our partners.
Of course, they want to see some other material bring in, some resources come back to the reserves, and we still give priority to what we can do in this regard and in the next six to eight months, we will do quite a bit of work to see what can be done. Adrian DayOkay. That\'s helpful. Thank you.
Welcome to Peter KukielskiYou.
Thank you.
The next question is from Orest Wowkodaw from Scotiabank.
Orest, please continue
Orest WowkodawHi. Good morning.
I have a couple more questions about Bisha if I can.
On the new smaller pit in Bisha main, considering the equipment you ordered, when is there no return for the smaller size?
Peter KukielskiOrest, this is Peter.
Although the equipment we ordered is a dedicated equipment for the eighth phase of the current life cycle of the mine plan, it also needs to expand the plan.
So we certainly have the rest of the year to look into opportunities to bring some of these resources back into reserve.
Orest WowkodawOkay.
But after the end of the year, don\'t you really think there will be bigger pits in the future?
Fraser burkierrest, let me say.
I wouldn\'t say that.
There are two possibilities at the end of this year or early next year.
Of course, Bisha\'s underground peas are considered, which is the net present value of $50 million.
It considers recovering most of the 9-phase materials from underground.
But another opportunity that exists may not be a fleet of the existing size, but a fleet of different a sizes, as well as additional capital injections for Phase 9 early next year.
So it\'s still possible.
I don\'t think that when you come to an end in 2018, of course, yes, you won\'t have anything in return relative to underground or other ideas.
This decision is-
Manufacturing driven by metal prices?
Like if we see $3 copper in the next six months, is this really the main driver of your decision to extend?
Fraser burkiyette is a combination of a few things.
This will, of course, work.
The price of metal will definitely affect it.
It is our preference to be able to use the existing ammunition on site and the equipment we have and the various places where we can allocate capital for the now higher-yielding Timok.
But it is clear that we have just approved an additional $24 million for Bisha.
All the people have a play.
Orest WowkodawOkay.
You then put in the technical report $40 million in closing costs, including 2021 of mine life.
When you consider closing costs, how much do you actually save net with smaller pits for capital expenditures?
This is Tom Whelan.
For now, we don\'t actually expect that much savings in closing costs.
The existing footprint has not changed this significantly.
Later this year, we will have an annual update on our asset retirement obligations, and good people will feel comfortable as there is an opportunity to move from the total amount currently in the financial statements.
But before the work is done, we just don\'t feel comfortable recording this reduction.
So this is a good question.
We want to reduce it, how much will it cost.
But we don\'t have that confidence yet.
But it will be updated by the end of this year.
Orest WowkodawOkay.
But what I would like to ask is, given the cost of closing that you have proposed, what is the net savings on capital expenditures with a smaller footprint?
Fraser, it\'s Fraser.
At a higher level, I can summarize.
Really, what are you talking about? You brought it to two, two. and-a-
For half a year, this may not offset the net difference in mathematics.
You know, plus or minus, Stage 8, the stage we\'re going to use right now, and I\'m going to use the term Phase 8 now, which is the simplest,, the Reserve case we just released is not much different from the previous better Phase 9.
In fact, this is a higher navigation for Phase 9.
You might say, why don\'t you do that?
But there are actually two things.
One is that cash flow will definitely be better from the early eighth stage, and we are back to the risk of capital allocation and execution, because now we are not completely satisfied with the bigger pit and the extra 60 million tons of material you have to move.
So all of this is taken into account in the decision of Phase 8 or smaller pit options, although plus or minus, NAV doesn\'t make much difference between the two.
Orest WowkodawCan can Could you please elaborate on the risks of seeing larger pits?
Risk of execution?
Orest WowkodawYes.
At the end of the day, it comes down to physical movement.
This is probably the biggest problem.
We ship an average of 20 million tons per year, 18 to 20 million tons of supplies.
There will be no big change next year. The kimchi will become 21, 22 million tons next year, and 15 next year.
If we go to Phase 9, these numbers will reach 33 to 35 million by next year, or even rise to 40 million, and then fall back to 20.
As a result, the barrier to material flows may be the greatest risk of execution faced by existing fleets and the capital we are now willing to invest in.
See you at Orest WowkodawI.
Peter KukielskiSorry.
In addition to that, I would just like to add that this is not an increase in the fleet, but an increase in the infrastructure that supports the fleet.
For example, we need trucks of different sizes.
New workshops are needed for these trucks.
We need a new human camp.
All kinds of things.
Therefore, in order to move to a larger pit, a large amount of infrastructure is needed to support heavy equipment, we just feel that the risks associated with manpower and so on are too great.
See you at Orest WowkodawI.
I only have one last question.
Given your new view of Bisha, would you consider divesting Bisha and focusing only on Timok? Of course, you \'ve mentioned Timok, and it\'s correct, Timo.
Peter KukielskiLook, we always consider what is the best result for our shareholders and our portfolio, but this is certainly not the top priority.
Orest WowkodawOkay.
Thank you very much.
Thank you.
Your next question is Craig Hutchinson from TD Securities.
Go ahead, Craig.
Good morning, guys.
Can you talk about the decision to increase the capital budget, and now the $41 million in Bisha is compared to the beginning of the year?
Aren\'t there many of these issues in catch-up divestiture?
Shouldn\'t this be given in 2017\'s original guide?
Peter KukielskiAt at the beginning of the year, we have not yet made a decision related to the direction we will take in relation to the size of the pit.
Therefore, it is difficult to make specific decisions on capital requirements when making decisions.
Craig huchisonbut I think the number will be higher anyway if you decide to go to a bigger pit.
So should this number at least not be taken into account? Tom Hui Lange la
I may answer this question.
I\'m not entirely clear about your question, but when we run our reserve scenario when mineral resources are nearing completion, we have two or three different scenarios.
One of them includes a bigger pit.
A smaller pit is included.
Again, for the larger mine, while this is our initial support and understanding, we think this may work, and the strip rate is my average of 10:1 compared to 7:1
We looked at the impact of the additional capital we needed, but the amount of capital was twice as large as we were in smaller pits, there is not much significant difference in net asset value and return and then due to the risk of execution.
So these are the discussions and ongoing analysis that we are having during the period 5, June.
Then we made the board decision recently and decided to go with the smaller pits.
Craig Hutchison okay.
Then decide to continue to invest in Bisha in exploration, just taking into account some of the economics you have in the scope study, do you plan to revisit this?
I mean, your survey now draws a marginal value for the underground of Bisha and Haruna.
Does it make sense to continue to spend on exploration?
Peter KukielskiI agreed.
We revisit our exploration strategy every quarter.
Look at what we spent this year, what we have to spend a year, and about $3 million for the rest of this year, 60% of which are ours, and tax breaks.
So it makes sense from the potential results.
But our focus for the rest of the year is on the Bisha target set earlier rather than trying to further define Harena.
We think that, in fact, there may be a good return on the money.
Craig Hutchison okay. Thanks guys.
Thank you.
The next question is securities by Stefan Ioannu Cormark.
Please continue, Stefan.
Stefan ioannoureat. Thanks guys.
In fact, my problem may have been solved a bit on Craig\'s last one.
Just given the short fuse of the remaining mine life of the current Bisha mine plan, four years, give or accept, should we expect more efforts from the regional exploration there, trying to push exploration to resources and then put in reserves to coincide with the end of a mine with a smaller Bisha?
Peter KukielskiStefan, yes, you should expect.
But we will do it with caution and restraint.
Now, no matter what we find, there may be a gap between the end or exhaustion of the pit and the development of any other resource.
Stefan IoannouOkay.
Thank you very much.
Thank you.
This is the end of the Q & A session.
I will now return it to Peter Kukielski for closing remarks.
Thank you again for attending today\'s conference call.
When we report third-quarter results, we look forward to updating you again in November. Thank you.
This concludes today\'s conference call and webcast.
We appreciate your participation and we ask you to disconnect the line.
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