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Hudbay Minerals, Inc. (NYSE:HBM)
Q1 2019 Earnings Call
May 7, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen; thank you for standing by. Welcome to the Hudbay Minerals, Inc. Q1 2019 conference call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press the * followed by 0 for operator assistance at any time. I would like to remind everyone that this conference call is being recorded today, May 7, 2019, 8:00 a.m. Eastern Time. I will now turn the conference over to Miss Candace Brûlé. Please go ahead.

Candace Brûlé -- Director of Investor Relations

Thank you, operator. Good morning, and welcome to Hudbay's 2019 first quarter results conference call. Hudbay's financial results were issued yesterday, and are available on our website, at www.hudbay.com. A corresponding PowerPoint presentation is also available, and we encourage you to refer to it during this call. Our presenter today is Alan Hair, Hudbay's President and Chief Executive Officer. Accompanying Alan for the Q&A portion of the call will be David Bryson, our Senior Vice President and Chief Financial Officer, and Cashel Meagher, our Senior Vice President and Chief Operating Officer.

Please note that comments made on today's call may contain forward-looking information, and this information, by its nature, is subject to risks and uncertainties and, as such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the company's relevant filings on CDAR and EDGAR. These documents are also available on our website.

As a reminder, the amounts discussed on today's call are in US dollars, unless otherwise noted, and now I'll pass the call over to Alan Hair. Alan?

Alan Hair -- President and Chief Executive Officer

Thanks, Candace. Good morning, everyone. I'd like to begin today's call by welcoming the incoming members of our Board. We are pleased to have the proxy contest behind us, and appreciate the strong support we received from our shareholders. We look forward to continuing to execute our growth strategy to create long-term value for shareholders.

The presentation I'll be delivering on today's call will start with an overview of our corporate achievements so far in 2019, and highlight some of our financial results this quarter. I will then review the performance of each operating business unit during the quarter, along with Rosemont developments, and the regional growth potential in each of our business units. I'll spend a few minutes reiterating the elements of our growth strategy, and will conclude the presentation with a summary of our near-term and medium-term catalysts.

2019 has been a busy year for Hudbay so far, and I am very proud of our team's execution on delivering several growth initiatives at both the Manitoba and Arizona business units. In February, we released a new mine plan for our Lalor mine in Snow Lake, which will double the annual gold production at industry-low sustaining cash costs, and significantly increase the reserve and resource estimates at Lalor. The new Lalor mine plan was the culmination of extensive work completes by the team over the last three years in the gold zone, including over 100,000 meters of drilling, construction of bulk sampling tower, underground development, and test mining of the gold zone, and the evaluation of several different scenarios to validate that this new mine plan was the most economic, and generated the highest shareholder value.

The Lalor mine also achieved its ramp-up to 4,500 tons per day in February, resulting in record mine production during the first quarter. The Stall concentrator in Snow Lake achieved record quarterly production as a result of several operating and maintenance improvements. In February, we discovered a new deposit in Snow Lake called the 1901 Zone, which is located approximately 1,000 meters off the existing underground ramp from Chisel North to Lalor. We recently extended the 777 mine life, and expect the life of the Flin Flon processing facilities to 2022.

We have also achieved several milestones at our Rosemont project in Arizona this year, including receiving the Section 404 water permit from the Army Corps of Engineers on March the 8th. This was the final federal permit needed for Rosemont, and completed a lengthy 12-year permitting process. I would like to congratulate our team in Arizona who've worked hard on this process for several years.

Shortly after the receipt of the 404 permits, we announced an agreement to purchase the Korean joint venture partner's minority interest, which closed in late April, providing Hudbay with 100% ownership of Rosemont today. We also received the Mine Plan of Operations from the US Forest Service in March, and subsequently announced the sanctioning of a $122 million early works program at Rosemont for 2019, with a focus on developing the offsite infrastructure.

In the first quarter of 2019, we continued to maximize the potential of our Peru and Manitoba operating assets with record copper recoveries at Constancia, and record throughputs at both the Lalor mine and the Stall concentrator. We produced 58,000 copper equivalent tons in the quarter, an increase from last quarter due to high copper and zinc production, partially offset by lower precious metals production. We are proud of the operating performance in both Peru and Manitoba, continuing a trend of recent strong production quarters.

Cash costs of $1.11 per pound of copper in the quarter were higher than the previous quarter, primarily due to lower zinc by-product credits from lower sales volumes. All-in sustaining cash costs of $1.81 per pound of copper were 5% higher than last quarter, due to the same reasons, and higher general and admin expenses were due primarily to increased share-based expense from the higher share price.

Earnings and earnings per share in the first quarter were affected primarily by two factors: the first was non-cash deferred revenue adjustments from increased reserves and resources, which affected earnings per share by $0.06. The second was an accrual for Pampacancha delivery obligation of approximately $0.03 per share, and I'll explain in more detail shortly. We ended the year with $486 million in cash, and a net debt position of $491 million, positioning us well to fund our future growth initiatives. First quarter results are on track to meet all production costs and capital spending guidance in 2019.

Now let's turn to our South American business unit: our Constancia mine, where it continues to perform well with strong mill throughput, record copper recoveries, and lower unit and cash costs in the first quarter of 2019. We continue to be pleased with the mill's performance, averaging approximately 89,000 tons per day during the first quarter. The mill achieved record copper recoveries of over 86% in the quarter. While our recoveries will vary from quarter to quarter, depending on the complexity of the ore feed, we continue to see the results in the recovery improvement initiatives that we are implementing. These initiatives are a part of key operational strategies that include continuous improvement efforts targeting rotational operating efficiencies, and the integration of an automated advanced process control system in the grinding and bulk flotation circuits.

Slide Seven shows the results of these continuous improvement efforts, with the improving trend in copper recoveries over the last several quarters. During the first quarter, Constancia produced 32,000 tons of copper, 14,000 ounces of precious metals, and 304 tons of moly. Combined unit costs were $8.87 per ton in the quarter, lower than the last quarter, in line with the guidance range for 2019. When compared to other open pit copper sulphide mines in South America, Constancia has the lowest operating cost per ton, which is even more compelling, considering some of the other mines in that comparable group are larger and benefit from economies of scale. Constancia's cash costs and sustaining cash costs were 10% and 16% lower, respectively, than the fourth quarter, primarily as a result of lower unit costs and higher copper production.

During the second quarter of 2019, a six-day maintenance shutdown of the Constancia mill is planned. In addition to regular semi-annual maintenance work, we plan to install new equipment in support of efforts to further optimize recoveries at Constancia. Combined unit costs in the second quarter of 2019 are expected to reflect correspondingly lower ore throughputs, and higher maintenance costs. In addition, in line with the mine plan, mined copper grades are expected to be lower than the annual average during the second quarter of 2019, which is expected to effect contained metal production and cash costs, compared to other quarters in 2019. The maintenance shutdown and the variations in copper grade are consistent with the full-year plan for Constancia, and we continue to expect production and cost guidance to be met for the full-year 2019.

We expect to continue to add value at Constancia through bringing the Pampacancha satellite deposit into production, which will extend the current high-grade profile. We are pleased with the progress of our recent discussions with the local community of Chilloroya to acquire the surface rights at Pampacancha. We continue to take a disciplined, measured, and patient approach to these negotiations, as this has been proven to be an effective way of engaging in previous instances, and is consistent with our proven long-term strategy for securing social license, and developing our business in Peru. The southern Peru copper mining corridor has seen heightened political activity over the past several months; we are pleased that to date these activities have not impacted operations at our Constancia mine.

During April 2019, the Chilloroya community was added to a list of communities designated as indigenous by the Ministry of Culture for the purposes of Peru's consulta previa law, which implements Peru's commitment to ILO Convention 169 consultation requirements. As a result, once an agreement is reached with Chilloroya, the consulta previa law requires additional consultation between the Peruvian government and the local community before work can begin. Based on other recent consultation processes, we would expect additional government consultation period to take between approximately three to six months after we reach an agreement with Chilloroya. Given this change, although Pampacancha development activities may still be able to commence in 2019, we expect that ore production at Pampacancha will not begin until 2020, and I will recognize an obligation to deliver additional precious metal credits to Wheaton Precious Metals, in accordance with the streaming agreement we have in place.

Turning to the rest of the Constancia region, we are excited to test the potential of other nearby satellite targets we acquired last year, including the Maria Reyna, Caballito, and Kusiorcco targets, which could provide higher grade feed to the Constancia mill after the Pampacancha ore body has been mined. Geophysical characteristics indicate these satellite properties have the potential to be even more prospective than the Constancia and Pampacancha ore bodies. We have commenced permitting, community relations, and technical activities required to access and conduct drilling activities in these properties, and have been successful, and reached a community agreement with plans to drill one of the properties later in 2019.

Moving on to our Manitoba operations, total ore mined was 19% higher in the first quarter, compared to the fourth quarter of last year. Higher production volumes at 777 were attributable to improved availability of the scoop and truck fleet, and a focus on increasing the key performing indicators in the drilling, blasting, and backfilling processes. Higher production volumes at Lalor were due to having more mining fronts available, and improvements to the stope cycle time. As a result, total mining cost per ton decreased by 10% from last quarter. Total ore milled at both of our concentrators was higher quarter-over-quarter. The Stall concentrator continues to perform well, and achieved a record throughput of over 3,500 tons per day in the first quarter, as a result of ongoing operational and maintenance improvements.

Total concentrated unit operating costs improved 16% in this quarter, compared to the fourth quarter last year. Despite lower mining costs and milling unit costs in the first quarter, Manitoba combined unit operating cost per ton milled was slightly higher as a result of transportation delays, when trucking excess ore from Lalor to Flin Flon for processing causing mined ore to exceed milled ore by 9% in the quarter. The related mining costs are included in the numerator of the combined unit costs in the first quarter, while the excess ore inventory is expected to be drawn down in the second quarter. Combined unit costs are expected to be within the guidance target for the full year 2019.

Cash costs and sustained cash costs per pound of copper produced in the first quarter were both higher than the fourth quarter, primarily as a result of the timing of zinc and precious metals sales volumes, causing lower by-product revenue. The same cash cost was also affected by increased capital development expenditures at Lalor.

We've been highly active in the Manitoba region over the past several years, with a focus on leveraging our exploration expertise, our existing processing infrastructure, and several inexpensive acquisitions to develop a compelling strategy to maximize the value of Lalor and our nearby deposits.

As mentioned earlier, we were very pleased to release the new Lalor mine plan in February. Lalor's annual gold production is expected to more than double from current levels once the New Britannia mill is refurbished by 2022, with average annual production of approximately 140,000 ounces during the first five years at a sustaining cash cost, net of by-product credits, of $450.00 per ounce. That will make Lalor one of the lowest cost gold mines in Canada. The new Lalor reserve estimate supports a 10-year mine life, but there remains significant opportunity to extend the mine life beyond ten years, and potentially further increase annual production to utilize the full capacity of both the Stall and New Britannia mills in Snow Lake.

The first area of opportunity is within the current Lalor resource estimates. There are currently almost six million tons in Lalor's inferred resource category. Hudbay is implementing a more stringent approach to resource reporting for underground deposits. With this approach, the potential for economic extraction of the mineral resource estimates at Lalor are reported within the constraint of a stope optimization envelope process, similar in concept to a pit shelf or an open pit deposit. This excludes from the resource estimate small individual resource blocks that may meet an economic cutoff criteria on an individual basis, but could not be aggregated into mineable shapes. As a result, we expect a higher conversion ratio from resources into reserves than would otherwise been the case from the previous Lalor known resource estimates.

The second area of opportunity to extend mine life in Snow Lake is through the deposits with current known resources within trucking distance of Stall and New Britannia. These include the WIM, PEN II, and New Britannia mine deposits. As shown in Slide 12, known mineral resources at these nearby satellite deposits include over 4 million tons of indicated resource estimates, and over 5 million tons of inferred resource estimates.

The WIM deposit was acquired for approximately $500,000.00, and is a copper-gold deposit that starts from surface, and is located approximately 15 kilometers by road from New Britannia. Hudbay is developing a mine plan, and conducting metallurgical testing on the deposit with the objective to upgrade the resource to a reserve with the 2019 annual year-end reserve and resource update. WIM has the potential to be developed via an underground ramp, and could feed the New Britannia mill after the richest portions of the Lalor reserves and resources have been depleted.

New Britannia is a former gold producing mine with significant mineral resources, which remain accessible in three zones, with some investment in the existing mining infrastructure. We continue to advance studies to determine the technical and economic viability of the existing mineral resources, and the potential to process this material at the New Britannia mill.

PEN II is a low-tonnage and high-grade zinc deposit that starts from surface, and is located within trucking distance from the Stall mill. PEN II could constitute a supplemental source of feed for this mill.

A third area of opportunity for mine life extension is through Lalor in-mine exploration. We continue to advance exploration activities at the Lalor mine, where drilling has confirmed the extension of known high-grade lenses. Lalor in-mine exploration drilling will continue throughout the year, and is expected to be incorporated in the annual reserve and resource estimate for the year ending 2019. We plan to drill Lens 17 from underground during 2019; to date, Lens 17 has only been explored from surface holes, and through a two-phase underground drilling approach this year, we'll test both the upper and lower portions of this analog to the copper-rich Lens 27.

As shown in the diagram on the right of Slide 14, recent in-fill drilling of Lens 25 has extended Lenses 23 and 32, with true widths of 20-25 meters combined. Lenses 23 and 32 still have room to extend down-plunge. We expect to include the results from this drilling in the annual reserve and resource updates at the end of the year.

Within the Lalor mine, we also expect to conduct some deep exploration drilling from underground in 2019 to test for new base metal lenses and copper-gold feeders. This drilling will commence after Phase 1 of the Lens 17 drill program is complete this summer.

In February 2019, we announced the discovery of the 1901 Zone, located between the former producing Chisel North mine and Lalor mine. The discovery is situated less than 1,000 meters from an existing active underground ramp at a depth ranging from 520-620 meters, and within 15 kilometers of the Stall concentrator. The mineralization is interpreted as a volcanogenic massive sulphide deposit, fed by a system of discrete copper-gold rich feeder zones intersected during previous drilling. We continue to delineate the deposit with several significant intersections to date. The zone remains characterized by high-grade zinc with locally high-grade gold and silver content. The mineralization occurs along the hanging wall contact of the stratigraphic horizon hosting the Chisel North deposit.

The drill program continues from surface to define the lateral extent of this new discovery, and to establish the spatial continuity of the high-grade lenses located within the mineralized zone. Based on drilling success, an underground exploration platform may be developed later this year from the Chisel-Lalor ramp in order to access and further define the deposit. We expect to publish an initial resource estimate for the 1901 zone in the second half of 2019.

I would like to recognize the efforts of the Manitoba business unit stakeholders, and their continued commitment to optimizing operations and evaluating opportunities to extend the life of the asset infrastructure in the Flin Flon region. Over the last several years, their combined efforts have resulted in an extension of the 777 mine life to the second quarter of 2022, which provides for the continuance of the Flin Flon mill and zinc plan to the second quarter of 2022, as well. There remains some exploration activity in the region, which is why we intend to place the Flin Flon mill in care maintenance with the hope that this infrastructure may be utilized again in the future. In the meantime, with the growth expected in the Snow Lake region, we remain focused on the seamless transition of the workforce from Flin Flon to Snow Lake over the next several years.

I'll now turn to our Arizona business unit, where we've achieved several significant milestones in the past two months, as highlighted earlier in my presentation. The permitting process at Rosemont concluded in March 2019 with the receipt of the Section 404 Water Permit from the US Army Corps of Engineers, and the Mine Plan of Operations from the US Forest Service. Rosemont is now a fully permitted, shovel-ready project.

As part of the initial development plans, our Board has approved an early works program with spending of $122 million over and above the $20 million of Rosemont spending previously included in the 2019 growth capital expenditure guidance. The early works program will be funded from cash in hand, and is part of Rosemont's total project capital cost estimate of $1.9 billion, as disclosed in the 2017 technical report for Rosemont. We are moving ahead with early works and financing activities in parallel in 2019, and we expect to seek Board approval to commence the construction of Rosemont by the end of the year. This would enable first production by the end of 2022.

On April the 25th, 2019, we completed the previously announced acquisition of our minority joint venture partner's interest in Rosemont for an initial cash consideration of $45 million. Hudbay now owns 100% of Rosemont, allowing greater strategic flexibility with respect to capital structure and project financing alternatives. We intend to evaluate a variety of options, including the addition of a new committed joint venture partner for the development of Rosemont. Hudbay will carry out this process in parallel with advancing the early works, with the objective to select the highest value-maximizing scenario, and the best-case assumption of ultimately holding approximately 70% interest while maintaining operatorship.

In this best case, we expect our share of the total initial capital cost estimate to be in the order of approximately $800 million, as shown in Slide 20. We believe we'd be in a strong position to fund Rosemont with almost $1 billion in total liquidity to date. Rosemont, located in Arizona, is one of the world's best undeveloped copper projects, delivering a 15.5% after-tax unlevered rate of return at a copper price of $3.00 per pound. The project is expected to produce approximately 127,000 tons of copper annually, at the cash cost of $1.14 per pound, and after by-product credits over the first ten years of operation. Once in production, Rosemont will be the third largest copper mine in the US.

As we plan for the construction of Rosemont, and select a potential minority joint venture partner, our past success with the construction and ramp-up of Constancia provides Hudbay with the expertise to replicate that success through the development of Rosemont into a future-operating mine. To put Constancia's development into perspective, we acquired the deposits in 2011, sanctioned full project development in 2012 after completing our own detailed engineering studies, and achieved commercial production in early 2015. As shown in Slide 22, the mine was completed on time, with leading capital cost control compared to other mining projects. In addition, Constancia's commission schedule was the fasted ramp-up timeline achieved in the industry. Other global mining companies have recognized this achievement and used Constancia as a benchmark for their own mine commissioning schedules. We look forward to leveraging our development and operating capabilities to create long-term value for our shareholders through the development of Rosemont, which is expected to more than double our current annual EBITDA estimates, and significantly grow our annual copper production.

We are proud of our success of executing on our consistent growth strategies since 2010, which has provided us with a diversified portfolio of operating mines and extensive development pipelines to support long-term value creation for shareholders. Through both organic exploration and our disciplined acquisition and divestiture strategy, we've developed a large portfolio of earlier-stage opportunities to provide future optionality to grow the business with the highest return assets. While we have already achieved several significant catalysts year-to-date in 2019, we believe we still have an abundance of near-term and medium-term catalysts within our robust growth pipeline. We have near-term Rosemont milestones with the execution of the early works program in the second half of 2019 to bring power and water to site, significantly de-risking the project construction process. We're moving the joint venture process forward, and we have been pleased with the level of interest we've received so far.

Lalor has several upcoming catalysts, as I highlighted earlier; this includes the conversion of resources to reserves, incorporating the known satellite resources into the mine plan, additional Lalor in-mine exploration, and ultimately, achieving first gold production out of New Britannia by 2022. We expect to be drilling at one of the satellite targets near Constancia later this year, and expect to reach community agreement at Pampacancha, to be in the possession to commence mining in the Pampacancha deposit in 2020.

In the Snow Lake region, we intend to explore a large land package to provide additional feed to our Stall and New Britannia mills, in addition to continuing exploration activities at the new 1901 deposit. We expect to publish a maiden resource in the 1901 Zone in the second half of 2019. We are drilling high-grade targets at Ann Mason this year, with a focus on enhancing project economics, along with advancing exploration activities on our other prospective grassroots exploration properties in Chile, Peru, and Canada.

In conclusion, we've continued to execute on our consistent long-term growth strategy, and developing our world-class asset base. We have demonstrated our proven track record of successful project development through best-in-class construction and ramp up of Constancia and Lalor. Our flagship mines are among the lowest-cost in their respective regions, confirming our operational excellence, and we continue to add value through successful exploration at all of our mines. We are pleased with our operating results and financial performance, as we continue to generate strong cash flow from un-hedged copper and zinc production, positioning us well for our future capital allocation plans. We have a robust pipeline in near-term and medium-term catalysts; we have a team in place to deliver on these catalysts, and we look forward to continue to deliver on our objectives through safe and responsible practices. That concludes my presentation portion of the call, and we are pleased to take your questions.

Candace Brûlé -- Director of Investor Relations

Operator, can you please poll for questions?

Questions and Answers:

Operator

Sure, ma'am, sure. Let me give the instructions to participants. Participants, if you'd like to ask a question, please signal by pressing *1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press *1 to ask a question. We will now take our first question from Oscar Cabrera from CIBC.

Oscar Cabrera -- CIBC World Markets, Inc. -- Executive Director

Good morning, everyone. Can you hear me, Alan?

Alan Hair -- President and Chief Executive Officer

Yes, I can, Oscar.

Oscar Cabrera -- CIBC World Markets, Inc. -- Executive Director

Okay, sorry about that. Yeah, just asking about Constancia and Pampacancha: the technical report calls for lower grade from the Constancia open pit, so in the event that Pampacancha gets delayed into 2020 -- say second half -- do you think that the level of grade that you're achieving right now in the open pit can be sustained out of the main pit, sorry?

Alan Hair -- President and Chief Executive Officer

I'll just point you back to the technical report, Oscar, because we break down the ore production, obviously, from Constancia and Pampacancha separately, so I'd just offset the Pampacancha portion accordingly, and have to do forward equivalent tons from the Constancia portion.

Oscar Cabrera -- CIBC World Markets, Inc. -- Executive Director

Yeah, I think what I'm trying to drive at, Alan, is that the Pampacancha has grades of 0.5 or higher, whereas the Constancia open pit has grades declining from the current 0.47 to 0.34 and lower, so the question -- I guess -- is you have been getting positive regular reconciliation throughout the last several quarters, so do you have access to that same grade material, if Pampacancha gets delayed?

Alan Hair -- President and Chief Executive Officer

I think, Oscar, we're mining as per the short-term planning version of the long-term mine plans that's within the technical report, and in terms of any grade bias, it's within what we consider to just be normal statistical variance, so we're not -- I think we keep guidance on the fact that you're best going by the technical report numbers.

Oscar Cabrera -- CIBC World Markets, Inc. -- Executive Director

Okay, sir, fair enough. Then, if I may, the designation of the indigenous people for the town of Chilloroya -- can you just talk about that? Provide context: was this initiated by the townfolks? How did we get to this point, and what other processes that you're aware of -- because you're saying that it's a three to six months -- is there a precedent for all of this, or for this time period?

Alan Hair -- President and Chief Executive Officer

Yeah, this is sort of part of an ongoing process. I mean, the implementation of ILO 169, I think, was originally focused on the oil and gas exploration in the Amazon Basin, and then subsequently they started to apply it to the high Andes. We were somewhat surprised back in October 2015, the community of Uchuccarco was designated as an indigenous community, and we were surprised at that time that Chilloroya, which is like an adjoining community, wasn't. But Chilloroya was subsequently added to the database in the April iteration, along with some other communities in the region.

The consultation that the Peruvian government carries out, I think, is fairly standard. I mean, there are other examples, given that we've got existing agreements with the community of Chilloroya, and those communities' agreements have been voted on by like, two-thirds of the community, we don't really see the consultation hurdle as being a particularly high bar, as it were, but it's just another piece of bureaucracy that will need to occur, so we're still, I think, in the order of three to six months would be reasonable, and that's certainly consistent with what we've seen in some other exploration and operating situations.

Oscar Cabrera -- CIBC World Markets, Inc. -- Executive Director

But I mean, based on the process that you have so far, are you confident you can start mining ore from Pampacancha, say, in the first half of 2020, or do you think that this can be pushed to the second half of 2020?

Alan Hair -- President and Chief Executive Officer

Obviously, it depends exactly how long the consultation takes, so it's hard to give an exact time, but certainly, it'd be reasonable to think by the middle of the year, we should be in a position to mine.

Oscar Cabrera -- CIBC World Markets, Inc. -- Executive Director

Thank you very much, sir.

Alan Hair -- President and Chief Executive Officer

Thanks, Oscar.

Operator

Thank you, sir. Participants, if you find that your question has been answered, you may remove yourself from the queue by pressing *2. We now take our next question from Matt Vittorioso from Jefferies.

Matthew Vittorioso -- Jefferies -- Managing Director

Yeah, good morning, thanks for taking my question. Just quickly on the financing for Rosemont: so the updated estimated share for your portion of the CAPEX is $800 million. You've got $940 million of liquidity; is there any contemplation currently to issue new high-yield debt, or any other kind of debt to support this funding, or do you currently think you can kind of fund it with your existing liquidity, and ongoing free cash flow? What are your thoughts there?

Alan Hair -- President and Chief Executive Officer

Well, we're gonna develop the full funding plan as we go through the JV process, and move toward full project sanctioning for the end of the year, while obviously, exactly how that funding plan would look will be partly dependent on market conditions at the time. When we do go to sanction the project, it's -- although as you point out, we could do it on the basis of cash in hand and future operating cash flow -- we want to make sure that we build in protection to the downside, in case there's any dip in metal prices during construction, so we may look to project sanction to potentially take on some additional debts, or even do some hedging to provide that cushion, but that will really depend on how the world unfolds over the next few months.

Matthew Vittorioso -- Jefferies -- Managing Director

Okay, and then, just with that sort of downside in mind, with copper down below $2.80: obviously copper moves around a lot, and the trajectory thus far has generally been better over the last six months, but how do you think about the Rosemont project in the context of copper below $3.00? I mean, historically, you'd said you'd wanted copper at $3.00 to really push forward. Obviously, we've kind of bounced up toward $3.00 and come back down, but are the long-term economics still OK if copper kinda hangs out where it is today?

Alan Hair -- President and Chief Executive Officer

Well, we remain very [inaudible] on copper, and certainly the economics of Rosemont are based on what we think's a relatively conservative long-term copper incentive price of $3.00, and obviously, to the long term price of $3.00, you'd expect some of that time to be at $2.50 and some of that time to be at $3.50, so we remain confident of the -- that Rosemont is actually one of the better projects out there.

In terms of, if you're talking about would we go ahead with full-blown sanctioning of the project at $2.80, I think I'd point to the fact that, with things like recent joint venture processes have tended not to reflect current spot copper prices, but have actually tended to reflect the longer term estimates that copper is going to be like, $3.00 or above, so I think we still remain in a very good situation to come up with a funding plan for Rosemont, even in a lower copper price environment. Obviously, if copper drops significantly further, then we may have cause to pause and reflect, but certainly I remain very confident on the fundamentals of copper, and that we'll see a significantly high copper price for a period, going forward.

Matthew Vittorioso -- Jefferies -- Managing Director

Great, and then just one quick follow up. Sorry if I missed it, but just on the timing of the 30% JV share sale, is that something that you think would be announced in the next few months, or what's the general timing around that?

Alan Hair -- President and Chief Executive Officer

Just consistent with project delivery, we would looking to ideally sanction the project at the end of the year, so the JV process'll be run consistent with that ultimate project sanctioning target.

Matthew Vittorioso -- Jefferies -- Managing Director

Okay, all right, thanks for the time; I appreciate it.

Operator

Thank you; we take our next question from Greg Barnes from TD Securities

Greg Barnes -- TD Securities -- Managing Director, Head of Mining Research

Yeah, thank you. Alan, I wanna focus on the Rosemont funding, as well. No. 1, the Wheaton Precious Metal funding, I think the initial payment of $50 million was due when permitting was received. When do you expect that to come in?

Alan Hair -- President and Chief Executive Officer

We choose when to call it, Greg, so there's no requirement right now for it.

Greg Barnes -- TD Securities -- Managing Director, Head of Mining Research

Okay, and then secondarily, on the chart on Page 20 of the presentation, you've got the buy-in of $250-300 million. Is that number that is floating around out there? How do you come to that range?

Alan Hair -- President and Chief Executive Officer

That was just a bit of a thumbs-up based on the previous transactions, you know, the precedence transactions that took place, and the nav multiples that they implied.

Greg Barnes -- TD Securities -- Managing Director, Head of Mining Research

Okay, so are you getting indications in that range, or are we not at that point yet?

Alan Hair -- President and Chief Executive Officer

We're not at that point yet, Greg, but certainly, I mean, I think it's fair to say that a good copper asset in a safe jurisdiction is highly desirable.

Greg Barnes -- TD Securities -- Managing Director, Head of Mining Research

Fair enough, yep. Thanks, Alan.

Operator

Thank you, sir. We take our next question from Orest Wowkodaw from Scotiabank.

Orest Wowkodaw -- Scotiabank -- Managing Director, Senior Equity Research Analyst

Yes, hi, good morning. Just turning back to Constancia again, with the changes around some of the rules regarding Pampacancha: do you anticipate that this new consultation will ultimately result in higher cost to you, with respect to acquiring the surface rights? And then I'm also wondering whether the other communities in those other satellite deposits, the Maria Reyna, Kusiorcco, and others are already included in this new policy, and whether that impacts your ability to go drill there, once you obtain rights for drilling? Thank you.

Alan Hair -- President and Chief Executive Officer

So to answer your first question, I don't see that there should be any link between this consultation requirement on the part of the government and any costs. On the second part, it's been a bit of an ad-hoc process, in terms of getting these communities added, but I believe with this latest iteration of the database, I think most of the communities in that region are now classified as indigenous. It was all a little bit strange, actually, that some were and some weren't previously, so I think it's a bit more consistent now, and that will add a similar consultation step, because whether it's an exploitation agreement, which we're looking to develop with Pampacancha, or an exploration agreement, that the process, from a government point of view's, the same.

Orest Wowkodaw -- Scotiabank -- Managing Director, Senior Equity Research Analyst

So does that mean that likely pushes out the exploration plans for those other satellite deposits beyond 2020?

Alan Hair -- President and Chief Executive Officer

I mean, the consultation can actually be done relatively quickly in some cases we've seen, so we've been fairly conservative in our estimates, so I don't see it's being a huge issue, to be honest, Orest; it's just another part of doing business.

Orest Wowkodaw -- Scotiabank -- Managing Director, Senior Equity Research Analyst

Okay, thank you very much.

Operator

Thank you; we take our next question from Stephan Ioannou from Cormark Securities

Stephan Ioannou, Ph.D. -- Cormark Securities -- Analyst, Institutional Equity Research

Great, thanks very much, guys. Just wondering, also, at Pampacancha, just I know in the formal guidance for 2019 that the CAPEX budget in Peru continues to include $45 million of growth capital. Does that number stand to change, just with part of the delay at Pampacancha, or how should we think about that number, going forward?

Alan Hair -- President and Chief Executive Officer

We're still guiding to that, because we hope still to be in a position to be advancing Pampacancha by the end of the year. The only difference is we won't be in ore, so that's why we're taking the Wheaton hit.

Stephan Ioannou, Ph.D. -- Cormark Securities -- Analyst, Institutional Equity Research

Got it, OK. Thanks very much, guys.

Operator

Thank you. We take our next question from Beryl Bartatoto from Haywood Securities.

Beryl Bartatoto -- Haywood Securities -- Analyst

Hi, Alan. Thank you for the presentation, good morning. I just had a very quick question: just the low sales volume for Q1, I was wondering what drove that? What was the cause of the lower sales volume on copper, gold, and zinc? Thank you.

Alan Hair -- President and Chief Executive Officer

Sorry, could you repeat the question?

Beryl Bartatoto -- Haywood Securities -- Analyst

Just for Q1, I'm noticing that lower metals were sold. So historically, it's one of the lowest sales volumes, and I was just wondering what was the cause of that?

Alan Hair -- President and Chief Executive Officer

Hi, yeah, we typically get some variation quarter-to-quarter, depending on the circumstances. Certainly, when you get the situation, I think it was the case in the end of Q1 where you sometimes get ocean swells at the port of Materani, and that might have delayed some shipments. Likewise, there were some railcar issues in Manitoba, which delayed some zinc shipments, so it's just, I think, the normal variation that you get with some of the logistical challenges of moving material.

Beryl Bartatoto -- Haywood Securities -- Analyst

Logistical challenge? Okay, thank you so much.

Operator

Thank you, we now take our next question from Mark Llanes, Credit Suisse Company.

Mark Llanes -- Credit Suisse -- Equity Research Analyst, Mineral and Mining

Hi, thank you for taking my questions. Just going back to Pampacancha, I know that you've already recorded the obligation on your books for the guarantees to Wheaton Precious Metals for 2019, but have you done any recording for 2020, and if not, can you quantify how much would that impact be? Thank you.

Alan Hair -- President and Chief Executive Officer

Well, we haven't done anything for 2020, because we believe we will have mined the required tonnage in 2020, even if those are fairly significant consultation periods, so no. We wouldn't book that. If we had to, it would be a similar order of magnitude to what we booked this year.

Mark Llanes -- Credit Suisse -- Equity Research Analyst, Mineral and Mining

Okay, and then, going to Manitoba, I know that you had mentioned that the transportation delays were the reason for the Manitoba costs being higher for the quarter. Could you let me know how much of the total ore from Lalor will be processed at Stall, versus Flin Flon for Q2?

Alan Hair -- President and Chief Executive Officer

Well, we're basically -- Lalor's running at that sort of nominal 4,500 ton per day rate, and Stall's limited to about 3,500 tons a day, so it's in the order of just that delta, which is a little bit under 1,000 tons a day.

Mark Llanes -- Credit Suisse -- Equity Research Analyst, Mineral and Mining

Okay, and plus the ore that was delayed from Q1?

Alan Hair -- President and Chief Executive Officer

Yeah, remember, there's lots of capacity in Flin Flon. Flin Flon's a 2.2 million ton per annum facility.

Mark Llanes -- Credit Suisse -- Equity Research Analyst, Mineral and Mining

Okay, and then the transportation costs that were the cost to move the ore from Lalor to Flin Flon, that was already recorded in Q1, and we won't see that in Q2?

David S Bryson -- Senior Vice President, Chief Financial Officer

It's David. To the extent that the ore was still in Snow Lake, that would not have been incurred in Q1; that'll be incurred in Q2, but the mining costs associated with that ore, which would be the bulk of the total delivered cost to Flin Flon was obviously incurred in the first quarter, and in the numerator of the combined unit cost ratio.

Mark Llanes -- Credit Suisse -- Equity Research Analyst, Mineral and Mining

All right, perfect. Thank you very much.

Operator

Thank you, sir. We now take our next question from Jackie Przybylowski from BMO Company.

Jackie Przybylowski -- BMO Capital Markets -- Analyst

Hi, good morning. Yeah, all my questions have been answered, thanks. I look forward to seeing you guys at the AGM in a little while.

Alan Hair -- President and Chief Executive Officer

Okay, thanks, Jackie.

Jackie Przybylowski -- BMO Capital Markets -- Analyst

Thank you.

Operator

Thank you. We now take our next question from Matthew Fields, Bank of America

Matthew Fields -- Bank of America -- Credit Analyst

Hey, everyone. Just wanted to ask about Rosemont funding, as well. Are you locked in at that 30% figure that you'd like to sell, or if copper prices are a little lower, are you willing to sell a higher proportion of the project -- maybe 40% -- to reduce your CAPEX burden?

Alan Hair -- President and Chief Executive Officer

I think it's fair to say that that 30%'s a nominal number. I mean, we're looking to maximize the value, and if we're in receipt of a very compelling offer for a slightly higher stake, we'd obviously consider it.

Matthew Fields -- Bank of America -- Credit Analyst

Just using your numbers on Slide 20, if you sold 40% instead of 30%, your share of CAPEX would be closer to $500 or $550 million, which seems much more manageable. And then, just a housekeeping thing, I guess: the $1,921 million of total initial CAPEX, by the end of this year, that would be reduced by the $120 or $140 million that you're spending this year on the project, right? So at the year-end date, that initial CAPEX number would actually only be $1.8 billion; is that the right way to think about it?

Alan Hair -- President and Chief Executive Officer

Yes, that's correct.

Matthew Fields -- Bank of America -- Credit Analyst

Okay, and then last: just in case copper prices stay low for a little while, are there any Canadian assets that you'd be willing to sell to help fund development of Rosemont?

Alan Hair -- President and Chief Executive Officer

I think we're always open to looking at how we can maximize shareholder value. I think if you look at our current asset base, we see -- whether it's Manitoba or Constancia -- we see lots of unrealized expiration upside. I think we'd be leaving some significant value on the table if we considered selling stakes in any of our assets, currently. Constancia obviously getting, we think, really significant upside with those land positions we consolidated, and you saw from the presentation within Manitoba, we're still drilling the new zone between Lalor and Chisel, and we see the significant potential to increase reserves both in-mine in Lalor and in the region, so while those things could be considerations, I don't think now's the time to be doing it, because we'd be leaving money on the table.

Matthew Fields -- Bank of America -- Credit Analyst

So the priority would be to slow down Rosemont, and keep all your Canadian assets if you're forced to choose, to prioritize?

Alan Hair -- President and Chief Executive Officer

I think if you look at any funding requirements for Rosemont, I'd actually consider that, with the current position we're in, that we're actually well placed to continue to develop Rosemont in all but a really severe downturn in the copper price.

Matthew Fields -- Bank of America -- Credit Analyst

Okay, but I just -- sorry to keep begging this question, but at $2.75 copper, obviously that's not where your IRR model is, so at $2.75 copper, are you sorta saying that the IRRs of your Manitoba assets are better than Rosemont at $2.75 copper?

Alan Hair -- President and Chief Executive Officer

Well, we're obviously going through a process, moving toward full-blown project sanctioning, so the early works program is consistent with the project development, but the project hasn't been fully sanctioned yet, and obviously we can take into account prevailing economic conditions at the end of the year, but I'll repeat what I said earlier: when we look at project economics, the IRR is based on a long-term copper price, and with a long-term copper price at $3.00, you'd expect some of that time, the price to be below $3.00, and some of that time the price'll be above $3.00. So it doesn't really change the long-term economics.

Matthew Fields -- Bank of America -- Credit Analyst

Okay, thanks very much.

Operator

Thank you. We now take our next question from Ralph Profiti from Eight Capital.

Ralph Profiti -- Eight Capital -- Principal, Metals and Equity Research Analyst

Thanks, everyone; thanks, operator. Alan, can you hear me OK?

Alan Hair -- President and Chief Executive Officer

Yes, I can, thanks.

Ralph Profiti -- Eight Capital -- Principal, Metals and Equity Research Analyst

Okay, thanks. Two questions from me: I just wanna come back to the Rosemont funding question. Can we think about this as the early works programming on Hudbay's equity interest being put forth, and then -- kinda -- Hudbay's equity CAPEX kinda goes into a lull, say sorta 2020, and then kinda comes back from an equity interest standpoint sometime in 2021, if all things go according to plan? Is that how the CAPEX profile on a Hudbay equity interest works?

Alan Hair -- President and Chief Executive Officer

Yes, that's correct.

Ralph Profiti -- Eight Capital -- Principal, Metals and Equity Research Analyst

Okay, and then I just wanna come back to Pampacancha and ILO 169: are there any new bodies of work that need to be done while this consultation process goes on? Things like baseline studies and assessments? And does the actual community agreement, is that the binding agreement, or does it have to go back to the Peruvian government for approval?

Alan Hair -- President and Chief Executive Officer

Well, no, the agreement with the community is the agreement, so all that we're talking about is an additional step of consultation, and that's to make sure that the process was conducted with free, prior, and informed consent, that's all. It's really more an administrative step on the government's part than anything else, to fulfill its commitment to ILO 169.

Ralph Profiti -- Eight Capital -- Principal, Metals and Equity Research Analyst

Okay, OK, so it sounds more procedural, if you would say.

Alan Hair -- President and Chief Executive Officer

Correct.

Ralph Profiti -- Eight Capital -- Principal, Metals and Equity Research Analyst

Okay, all right. Thanks for that.

Operator

Thank you, sir. We now take our next question from Dalton Baretto from Canaccord Genuity.

Dalton Baretto -- Canaccord Genuity Group, Inc. -- Director, Equity Research, Metals & Mining

Hey, good morning, guys. Just on this Rosemont JV process here: do you have a preference for the type of partner you bring on, in terms of strategics versus off-take partners, versus finance partners?

Alan Hair -- President and Chief Executive Officer

Not really at the end of the day, Dalton. It's who's going to cut the biggest check, I think would be the main consideration.

Dalton Baretto -- Canaccord Genuity Group, Inc. -- Director, Equity Research, Metals & Mining

Okay, so it's really just a number thing; you don't have a preference for a partner bringing something else to the table?

Alan Hair -- President and Chief Executive Officer

We are not -- what we are looking for is some additional financial input here. We think we've got the right team to build the project.

Dalton Baretto -- Canaccord Genuity Group, Inc. -- Director, Equity Research, Metals & Mining

Okay, great, and then just maybe one quick one on the ILO 169. Some of the other assets I cover in other countries that have gone over this process, there's a pre-consultation phase to define terms and conditions, then there's a consultation phase, and you know -- I guess my question is: what gives you comfort that this will get done within the three- to six-month period? Are there precedent processes that you can point to in Peru?

Alan Hair -- President and Chief Executive Officer

Yes, and I think the pre-consultation phase has been completed, because they're now on the database.

Dalton Baretto -- Canaccord Genuity Group, Inc. -- Director, Equity Research, Metals & Mining

Okay, great. That's all for me, guys, thank you.

Operator

Thank you. We now take our next question from Orest Wowkodaw from Scotiabank.

Orest Wowkodaw -- Scotiabank -- Managing Director, Senior Equity Research Analyst

Hi, thanks for taking the follow-up. Just a quick one: the SG&A spiked up in the quarter to about $15 million. Is that just solely related to the proxy battle? And then, I'm wondering if we can expect something similar here for Q2? Thank you.

Alan Hair -- President and Chief Executive Officer

No, I think, Orest, we mentioned [inaudible] think, I think the biggest driver of that was the appreciation in the share price, so share base comp appreciated accordingly.

Orest Wowkodaw -- Scotiabank -- Managing Director, Senior Equity Research Analyst

Okay. Hey, can you quantify what the costs of the proxy battle have been?

Alan Hair -- President and Chief Executive Officer

I think it's -- I mean, the number of aspects that you count toward what the cost of a proxy battle is is not always just straight dollars, either.

Orest Wowkodaw -- Scotiabank -- Managing Director, Senior Equity Research Analyst

Okay, maybe then the better question is: how much impact could it have on SG&A in Q2?

David S Bryson -- Senior Vice President, Chief Financial Officer

Orest, it's David. I think we'd expect about a penny of EPS impact, based on the costs that'll float through in Q2.

Orest Wowkodaw -- Scotiabank -- Managing Director, Senior Equity Research Analyst

Great, thank you.

Operator

Okay, there are no further questions at this time, so I'll be handing the call back to you for any further or additional comments.

Candace Brûlé -- Director of Investor Relations

Thank you, operator, and thank you, everyone for participating. Please feel free to reach out to our investor relations team if you have any further questions.

Duration: 56 minutes

Candace Brûlé -- Director of Investor Relations

Alan Hair -- President and Chief Executive Officer

David S Bryson -- Senior Vice President, Chief Financial Officer

Cashel Meagher -- Senior Vice President, Chief Operating Officer

Oscar Cabrera -- CIBC World Markets, Inc. -- Executive Director

Matthew Vittorioso -- Jefferies -- Managing Director

Greg Barnes -- TD Securities -- Managing Director, Head of Mining Research

Orest Wowkodaw -- Scotiabank -- Managing Director, Senior Equity Research Analyst

Stephan Ioannou, Ph.D. -- Cormark Securities -- Analyst, Institutional Equity Research

Beryl Bartatoto -- Haywood Securities -- Analyst

Mark Llanes -- Credit Suisse -- Equity Research Analyst, Mineral and Mining

Jackie Przybylowski -- BMO Capital Markets -- Analyst

Matthew Fields -- Bank of America -- Credit Analyst

Ralph Profiti -- Eight Capital -- Principal, Metals and Equity Research Analyst

Dalton Baretto -- Canaccord Genuity Group, Inc. -- Director, Equity Research, Metals & Mining

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