HudBay Minerals Inc (HBM) Q4 2020 Earnings Call Transcript

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HudBay Minerals Inc (HBM 1.76%)
Q4 2020 Earnings Call
Feb 19, 2021, 9:00 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. Fourth Quarter and Full Year 2020 Results and Annual Guidance Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, February 19, 2021 at 9:00 A.M. Eastern Time.

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

Candace Brule -- Director, Investor Relations

Thank you, operator. Good morning and welcome to Hudbay's 2020 fourth 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 available and we encourage you to refer to it during this call. Our presenter today is Peter Kukielski, Hudbay's President and Chief Executive Officer; accompanying Peter for the Q&A portion of the call will be Steve Douglas, our Senior Vice President and Chief Financial Officer; Cashel Meagher, our Senior Vice President and Chief Operating Officer; and Eugene Lei, our Senior Vice President, Corporate Development and Strategy.

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

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

Peter Kukielski -- President and Chief Executive Officer

Thank you, Candace. Good morning everyone and thanks for joining us. I know it's been a long week for you all so we at Hudbay are especially appreciative of you all joining us for this call. I hope that everybody is staying safe and healthy as we approach the anniversary of the pandemic. We continue to focus on the safety of our employees and stakeholders and we believe that our diligence in screening, testing and workplace protocols has been effective in achieving our objective of being a safe employer and neighbor and we will continue to adapt our site-specific measures to conform to the regional health authorities latest guidelines.

In this presentation today, I'll touch on our corporate achievements and challenges in 2020 followed by an overview of our production and cost outlook as we execute our key strategic objectives for 2021. 2020 was an extraordinary year, while it brought many unforeseen challenges we face these, we persevered and we achieved production and unit cost guidance while advancing our growth initiatives. In March we announced the second Phase of our Snow Lake Gold strategy, which saw a 35% increase in our Snow Lake Gold reserves, a 41% increase in the life of mine gold production at Lalor and increased the annual gold production at Lalor to over 150,000 ounces at lowest quartile cash costs and sustaining cash costs.

In May we funded the New Britannia mill refurbishment project with a timely gold pre-paid transaction. We've advanced the project to 73% completion to-date. We also identified the potential to produce gold from the New Britannia mill earlier than expected in 2021 through the installation of modular flotation cells at the gold plant. We upgraded the NI 43-101 resource estimate at the 1901 deposit and increase the size of the base metal resources while defining a new gold-rich inferred resource. From an operating perspective we experienced an unfortunate incident in October with a 777 mine hoist rope and skip. The team quickly remedied the problem and the repair activities were completed well ahead of the estimated schedule and budget. Despite the 777 production interruption, our Manitoba operations exceeded the top end of our 2020 copper production guidance range and refined zinc metal production was higher than it has been in over 10 years.

We were extremely pleased with the productivity at our Snow Lake operations as the Lalor mine and Stall concentrator both achieved record quarterly and annual production during the year. In Peru, we signed the Pampacancha surface rights agreement with a community of Chilloroya in February of 2020 after which we initiated the Consulta Previa process and discussions with individual land users. However, with the onset of the pandemic in March, the Peruvian government declared a national state of emergency. This halted the Pampacancha processes until later in the year once meetings were able to be held virtually or in-person while adhering to social distancing protocols. We were pleased to finally complete the Consulta Previa process at the end of the year with strong community support, which led to the receipt of the final mining permit for Pampacancha in early 2021.

Limited site predevelopment activities have commenced. Discussions with the one remaining land user family are ongoing and we expect the initial mining of the deposit will commence in the second quarter of 2021. Following the government's declaration of a state of emergency, Constancia operations were temporarily suspended for eight weeks from March until May. The mine completed a quick and efficient ramp up to full production while operating under increased COVID-19 measures of extensive quarantining and testing of workers prior to coming to site. In September, Constancia became the first mine to obtain the SafeGuard Certification from Bureau Veritas in Peru for compliance with all of the protocols from its COVID-19 surveillance plan after an exhaustive audit of the mine's policies and procedures.

During the third quarter, we announced follow-up drilling results on our Constancia North target which intersected porphyry and skarn mineralization north of the Constancia pit and the mineralization remains open to the north. The encouraging results will be incorporated into our annual reserve and resource update for Constancia, which will be released at the end of March. In 2020, we advanced the exploration programs at Quehuincha North where we recently commenced drilling and at the Llaguen property in northern Peru where we received all required permits to begin drilling this year. We also advanced several other strategic initiatives across the organization. Our teams have done an outstanding job of implementing COVID-19 protocols in all of our operations.

Their focus on achieving strong results despite changing the way they work has been quite remarkable. In Arizona, we advanced the appeals process for Rosemont with the filing of our initial briefs in June followed by final briefs in November in conjunction with the filings of supported briefs by the federal government. In the second half of the year, we commenced an exploration drill program on our wholly owned land near Rosemont in a historic copper mining districts called Helvetia. We also continue to consolidate lands near our Mason Project in Nevada and advanced work in preparation for a preliminary economic study for Mason. We solidified our management team with my confirmation as CEO earlier in the year and the appointment of Steve Douglas as CFO in June.

In September, we completed the refinancing of our 2023 senior unsecured notes, which pushed out the maturity to 2029 and lowered the interest rate by over 1%. And last but not least, we maintained ongoing dialogue with our surrounding communities in Peru and Manitoba to provide pandemic relief support where we could. Turning to slide 4, fourth quarter consolidated copper production increased by 7% from the third quarter of 2020, primarily as a result of higher mill throughput and recoveries at Constancia and higher copper grades and recoveries in Manitoba. Consolidated gold production increased by 14% compared to the third quarter, due to higher grades at Lalor and higher recoveries at the Stall Mill. Zinc production contained in concentrate declined quarter-over-quarter as a result of the reduced output from the 777 mine.

However, refined zinc metal production increased from the third quarter as we continued to process available zinc concentrate inventories at the zinc plant, while the 777 shaft was being repaired. The strong copper, gold and silver production in the quarter offset the lower zinc production, resulting in relatively no change in copper equivalent production compared to last quarter. Consolidated cash costs declined from the third quarter levels due to higher copper production and higher byproduct revenue, partially offset by higher operating costs. Consolidated all-in sustaining cash cost remained relatively unchanged from the third quarter. Operating cash flow before change in non-cash working capital was $86 million during the fourth quarter, reflecting a slight increase from the third quarter due to higher realized copper and zinc prices and working capital changes.

This also led to significantly improved adjusted net loss and adjusted EBITDA results in the fourth quarter. Adjusted net loss was $0.06 per share and adjusted EBITDA was $107 million. For the full year 2020 we met the guidance ranges for all of our metals, copper production was lower year-over-year as a result of lower grades at Constancia and the impacts of the eight week temporary production interruption. However, consolidated gold production increased by 9% over 2019 levels as significantly higher gold production from Manitoba more than offset lower production in Peru. This allowed us to capitalize on higher gold prices this year as we saw a 24% increase in Manitoba's gold sales volumes in 2020 compared with 2019. We exited the year with $439 million in cash and equivalents which positions us well to pursue our strategic growth investments in 2021.

On slide 5 you will find a summary of our Peru operating results. Our Constancia team delivered strong performance this year while operating in a challenging social and political environment. During the quarter production of copper, gold and silver were higher than the third quarter of 2020 as a result of the ramp up to full production after the temporary suspension of operations. Full year 2020 production levels were lower than 2019 due to lower grades in line with mine plan and the production interruption in the second quarter. The mine achieved excellent operational efficiencies during the quarter with a 10% increase in ore mined compared to the third quarter. Ore milled was also higher than the third quarter as a result of a fourth quarter plant maintenance shutdown that was deferred to January 2021.

Recoveries of copper, gold and silver were all higher than the third quarter due to ongoing recovery optimization efforts and actively managing the characteristics of the ore feed. Unit operating costs in the fourth quarter were higher in the third quarter primarily as a result of higher mining costs but full year combined unit operating costs were in line with 2019 levels. Peru's cash cost was lower than the previous quarter due to higher byproduct credits and higher copper production. Sustaining cash cost increased quarter-over-quarter primarily due to capitalized exploration related to option payments for properties surrounding Constancia in the fourth quarter. Year-over-year cash cost and sustaining cash cost increased as a result of lower production due to the temporary mine interruption during the second quarter and lower grades as we progress through the mine plan.

As I mentioned previously, we achieved our production and unit cost guidance ranges for Peru in 2020. Now, moving to the next slide on Manitoba, we were pleased with the business unit's response to the 777 shaft incident. The business continuity plan relocated employees and equipment from 777 to Lalor and utilized Lalor's ramp to truck additional ore to surface from the upper parts of the mine at a rate of approximately 650 tonnes per day. This allowed Lalor to achieve record quarterly production averaging over 5,000 tonnes per day in the fourth quarter. Lalor continued to produce at a higher tonnage rate through the month of December mainly due to ongoing continuous improvement initiatives. As a result of these efforts together with higher head grades and recoveries production of copper and gold production was higher than the previous quarter.

We continue to see strong performance from the Stall concentrator with record throughput of over 4,000 tonnes a day achieved in the fourth quarter and approximately 3,870 tonnes per day on an annual basis. Full year ore processed at Stall increased by 9% as a result of ongoing continuous improvement initiatives and higher ore availability from the Lalor Mine. Unit operating costs in the fourth quarter increased by 11% compared to the third quarter but remained within the annual guidance range despite the 777 production interruption. Manitoba's cash cost and sustaining cash cost per pound of copper produced continued to benefit from higher byproduct credits. As I mentioned previously, Manitoba exceeded the top end of our copper production guidance range and met all other production and unit cost guidance for 2020.

Turning to slide 7, while 2021 continues to be a year of execution and delivery for Hudbay, our achievements in 2020 have positioned us well to deliver many key objectives this year. Our 2021 objectives are: to focus on operational efficiencies and maintain our low cost of production to continue to generate positive cash flow and strong returns on invested capital; to execute development and commence mining activities at the high-grade Pampacancha satellite deposit; further enhancing Constancia's production and cost profile; to deliver the refurbishment of the New Britannia Gold Mill to significantly increase gold production from Lalor, completing the second phase of the Snow Lake Gold strategy; to continue to progress the third phase of our Snow Lake Gold strategy to further increase annual production scale by advancing studies to optimize recoveries, throughput, resource conversion and exploration; to advance the appeals process and alternative options to unlock value at Rosemont.

To maintain Constancia's industry leading efficiency metrics by identifying areas of upside through continuous improvement initiatives at the mill and ongoing near mine exploration; to draw regional copper exploration targets near Constancia in Northern Peru and at Rosemont while continuing to advance exploration programs in the Snow Lake region, Peru and Nevada; to support our workforce, their families and the communities in which we operate through continuing to make health and safety a priority and providing ongoing COVID-19 support in line with our ESG principles. And the last objective is to evaluate exploration, organic growth and acquisition opportunities that meet our stringent strategic criteria and allocate capital to pursue those opportunities that create sustainable value for the company and our stakeholders.

Moving to the subject of guidance, in 2021, we forecast consolidated copper production to increase by 7% compared to 2020 production primarily as a result of higher expected copper production in Peru. We expect consolidated gold production in 2021 to increase by 62% year-over-year due to higher gold production in both Manitoba and Peru. In Manitoba, we expect gold production to increase by 40% in 2021 due to the planned early start-up of the New Britannia mill. In Peru we expect gold production to be more than triple that in 2020 as we begin to see the benefits from the higher grades at the Pampacancha satellite deposit. We expect zinc production to decline year-over-year as a result of prioritizing the mining of the gold rich zones at Lalor in connection with the early start-up of the New Britannia mill, which will result in mining less of the zinc-rich base metals zone at Lalor.

Peru's 2021 production guidance assumes mining of Pampacancha will begin in the second quarter with the initial phase of lower copper grades but higher gold grades expected to continue for the balance of the year before higher copper grades are forecast to enter the mine plan in 2022. Manitoba's 2021 production guidance contemplates an increase in Lalor's mine throughput to 4,650 tonnes per day from the previous 4,500 tonnes per today as we expect the recent trend of stronger production from the mine to continue. We plan to publish updated mine plans for our Constancia and Snow Lake operations with our Annual Mineral Reserve and Resource Update at the end of March 2021. Given the pending mine plan updates we will issue our updated three-year production outlook in conjunction with the release of the updated mine plans.

We expect the new Constancia Mine plan to reflect an increase in copper and gold production from 2022 to 2025 as the higher grades from the Pampacancha deposit into the mine plan. This is expected to offset the lost copper production from the 777 closure in mid-2022 and enable a steady state in our consolidated copper production. It will also incorporate new reserves from the Constancia North property, which will extend the Constancia pit. We expect the New Snow Lake Mine plan to reflect an increase in Lalor's mine production rate beyond 4,650 tonnes per day and incorporate the results of the 1901 pre-feasibility study and the Stall mill recovery improvement study. Now turning to annual cost guidance on slide 9, we expect total capital expenditures to decline by 11% year-over-year primarily due to lower expected growth spending in Peru in 2021.

Total plan sustaining capital expenditures are expected to increase from 2020 levels primarily due to the deferral of heavy civil works and capitalized stripping expenditures in Peru from 2020 into 2021. A tailings dam raise is under way at Constancia and the associated heavy civil works accounts for a significant portion of the 2021 sustaining costs in Peru. Also a portion of the Pampacancha heavy civil works has been reclassified from growth to sustaining capital expenditures in 2021. We expect Peru's sustaining capital expenditures to begin to decline in 2022. Manitoba growth capital of $75 million includes approximately $70 million for the remaining spend on the New Britannia mill refurbishment project and approximately $5 million for the construction of a new long term camp facility in Snow Lake.

The increase in Manitoba's growth capital spending includes approximately $20 million in New Britannia project expenditures deferred from 2020 into 2021 and approximately $13 million in additional project costs as a result of the completion of a definitive estimate that incorporates project scope additions and COVID-19 related costs. Peru growth capital spending of $5 million includes a portion of the Pampacancha project development expenditures that was deferred from 2020 but excludes the costs associated with completing the remaining individual land user agreements due to the ongoing nature of the negotiations. A significant portion of the total land user agreements cost was completed last year. We expect total exploration expenditures in 2021 to be higher than in 2020 as we plan to conduct additional drilling in Peru and Arizona.

In Peru, we are drilling Quehuincha North skarn property located approximately 10 kilometers north of Constancia. We also plan to start drilling the Llaguen greenfield project located near the city of Trujillo in northern Peru after the rainy season is complete. In Manitoba, we are conducting a winter drill program focused on expanding the 1901 deposit and testing drill targets identified between 1901 and the Lalor mine. And in Arizona we continue to drill in the Helvetia copper region following up on interesting intersections and we will provide further details once we receive all of the assay results. We expect unit operating cost in 2021 to be modestly higher than in 2020 with the inclusion of the New Britannia mill and higher input costs in Peru. Hudbay introduced consolidated cash cost and sustaining cash cost guidance in 2021.

We expect consolidated cash cost per pound of copper produced net of by-product credits to slightly increase from 2020 levels due to the expected increase in unit costs partially offset by expected higher copper production and higher byproduct credits. We expect consolidated sustaining cash costs to be consistent for 2020 as lower sustaining capital expenditures are expected to offset the increase in cash costs. The last topic I'll touch on is the execution of our growth initiatives. We continue to make significant progress at the New Britannia refurbishment project as seen on slide 10. The project continues to track ahead of the original schedule with overall project progress at approximately 73% complete.

Construction of the new copper flotation building continues to advance as planned. Construction of the pipeline between the New Britannia and Stall mills has been completed. Total project spending in the New Britannia refurbishment project is forecast to be approximately $13 million higher than budget. As I mentioned earlier, as the project nears completion, we have a higher classification of the project capital estimate. The project scope has been adjusted to incorporate changes to the Stall tailings pipeline configuration due to processing considerations in addition to the implemented scope changes related to the installation of temporary modular copper flotation cells to achieve early production at the gold plant. Also, as you can imagine, the COVID-19 pandemic has given rise to some additional costs associated with remote project management and pandemic safety protocols.

Refurbishment activities at the gold plant continue to remain ahead of the original schedule with commissioning expected to be completed in mid-2021. Ramp up and first production at the gold plant is expected early in the third quarter of 2021. Copper flotation building construction activities are on track for commissioning and ramp up during the fourth quarter of 2021. Operational readiness activities in support of the early start-up of New Britannia are on track with the underground development rates in gold-rich lenses 25 and 27 at Lalor proceeding ahead of plan. In addition to delivering on the New Britannia mill refurbishment project and the development and mining of Pampacancha, there are other strategic growth initiatives we expect to execute this year.

In Snow Lake, we continue to advance Phase 3 of our gold strategy. As I mentioned, we will update our mine plan at the end of March. And we believe this new mine plan will optimize our Snow Lake milling capacity with an expected higher production rate at Lalor, improved recoveries at the Stall mill and the incorporation of the 1901 deposit into the operations. Our focus will be on implementing these mine plan enhancements, while continuing to examine the opportunity to expand the New Britannia mill capacity beyond the currently planned 1,500 tonnes in the future. We have various exploration programs under way, including our drilling activities in Peru and Arizona that I mentioned earlier.

And we continue to advance exploration agreement discussions with the community of Uchucarcco on the Maria Reyna and Caballito properties north of Constancia. Maria Reyna is a prospective copper skarn-porphyry target and Caballito is a past-producing copper oxide mine, both of which are located within 10 kilometers north of Constancia. We also expect to be finalizing our work on the Mason Project preliminary economic study which is expected to be published this year. We believe we have several exciting optimization expansion and exploration opportunities that will be studied and advanced in 2021, creating many growth catalysts for the company this year. We look forward to delivering on those growth catalysts while executing our high return investment opportunities as we increase cash flows and create value for all of our shareholders.

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Orest Wowkodaw of Scotiabank. Please go ahead.

Orest Wowkodaw -- Scotiabank -- Analyst

Hi. Good morning. Peter, obviously you've got a lot of growth initiatives ahead of you here. Can you give us a bit of color on what this Constancia North deposit could do to the mine plan? Is it substantially higher grade? And I'm also curious if your -- if this new mine plan that'll come out will include a mill expansion at Constancia or is that more likely to come later?

Peter Kukielski -- President and Chief Executive Officer

Good morning Orest and thanks very much for the question. Look, we're currently completing the work on Constancia North but we do expect to incorporate it into our reserves at Constancia, which will extend the pit, as I said. We'll provide more details with the Annual Reserves and Resource Updates at the end of March. To your question with respect to mill, no, we are not currently planning within our mine plan for any expansion to the mill. Cashel any additional color you'd like to provide to that?

Cashel Meagher -- Senior Vice President and Chief Operating Officer

Thanks Peter. And it always remains a future option to us. And its work we're working on. But this current mine plan was developed to update what's happening at Constancia and to incorporate the Constancia Norte discovery over the last couple of years.

Peter Kukielski -- President and Chief Executive Officer

Does that answer your question?

Orest Wowkodaw -- Scotiabank -- Analyst

Well, just curious if you can give a sense of how much better grade is the North deposit versus the main? Is it just slightly better or materially better?

Peter Kukielski -- President and Chief Executive Officer

I would say Orest it's slightly better. It certainly is better than the main body. It's not as good as Pampacancha.

Orest Wowkodaw -- Scotiabank -- Analyst

Okay. And is the idea to sequence that concurrently with Pampacancha?

Peter Kukielski -- President and Chief Executive Officer

It's -- Cashel?

Cashel Meagher -- Senior Vice President and Chief Operating Officer

Yeah. The idea is to incorporate it the best way optimally with an NPV optimization process. And so we run several iterations of the mine to come up with the optimum value. And we expect that some of that material will move earlier into the mine plan versus holding it for later.

Orest Wowkodaw -- Scotiabank -- Analyst

Okay. And then, just finally, I mean to me it would seem like a mill expansion at Constancia would make a ton of sense given the lower grade profile of the main pit. What's holding you back there in terms of moving that project forward? Is it a permitting issue or just curious why that's not being fast tracked?

Cashel Meagher -- Senior Vice President and Chief Operating Officer

Yeah. I think you nailed it. It's about the permits and the permitting process. So that's ongoing and we sequence the permit with the process to get to different mining sequences. And so the latest one is with the agreement in Consulta Previa we're able to close the permit and hold the permits required to mine at Pampacancha and so the next permit iteration we would work on would be including something like a expansion at Constancia.

Orest Wowkodaw -- Scotiabank -- Analyst

Okay. Okay. Thank you very much.

Operator

Our next question comes from Greg Barnes of TD Securities. Please go ahead.

Greg Barnes -- TD Securities -- Analyst

Yeah. Thank you. In the MD&A or in the press release last night there's a comment about steady state production particularly of copper in the 2025 to 2026 range. Is that something in the plus 100,000 to 115,000 tonnes a year of copper ex or even before you -- include these new mine plans in the profile?

Peter Kukielski -- President and Chief Executive Officer

Yeah, that's correct, Greg.

Greg Barnes -- TD Securities -- Analyst

And how long do you think you can sustain that level of production?

Peter Kukielski -- President and Chief Executive Officer

I would say through to the completion of the depletion of Pampacancha.

Greg Barnes -- TD Securities -- Analyst

Okay. And then in the 2025 to 2026?

Peter Kukielski -- President and Chief Executive Officer

Yeah roughly that. And then you get some additional kick from Constancia North potentially as Cashel mentioned.

Greg Barnes -- TD Securities -- Analyst

Okay. Now on cost pressures you have some upward cost pressures or some upward revisions to costs for this year. But we're getting mixed messages from the various companies about whether they're getting cost pressures or not getting cost pressures. I just want to nail down and get some commentary from you on what you're seeing or what you are experiencing on the cost side in this environment.

Cashel Meagher -- Senior Vice President and Chief Operating Officer

Yeah, I think Greg, hi Cashel here. I think there is definitely on our base cost, there is -- and there are some pressures and we've seen them sort of sustainably creeping in and they're not in the 1% or 2% but they're not in the 10%, so they're somewhere in between. But I think we'll have real clarity on what those are and what we foresee them to be with these two mine plans coming out at -- near the end of March and that's Lalor and Constancia and so there'll be lots of clarity on it then.

Greg Barnes -- TD Securities -- Analyst

Okay. And finally Peter, I appreciate all of the talk about the growth initiatives you have and the things you're doing. You've been through a big phase of capital investment but what about shareholder returns and when do you think you'll be in a position to start talking meaningfully about the dividend and taking that higher?

Peter Kukielski -- President and Chief Executive Officer

Greg, I mean share returns obviously is a key element of capital allocation. It's something that we think about all of the time and we are singularly focused on delivering what we have to -- so that we can enter into that phase so we actually delivered sustainable shareholder returns. But Steve, do you want to comment on that further?

Steve Douglas -- Senior Vice President and Chief Financial Officer

Yeah, I agree wholeheartedly Peter. And Greg I -- look, we appreciate the need frankly, as I've always been schooled that the dividends are a cost of capital and they should be set such that they're sustainable growing over the course of -- in the case of a cyclical over the course of a sustained cycle. I also look at where we're at in terms of our opportunity set and our development potential going forward, and I think as it stands now probably the better use of our capital is ensuring that we've got a conservatively financed balance sheet but also the financial authority to pursue our expansion plans to be able to put us in a position to sustain that growing sustainable dividend over the span of time, and once we get ourselves positioned in terms of getting all of our assets working as optimally as we think we can. But the question is that is it a perfectly appropriate one that something as Peter pointed out? We discuss actively every day.

Greg Barnes -- TD Securities -- Analyst

Okay. So do you think you're about a year away from that process?

Steve Douglas -- Senior Vice President and Chief Financial Officer

No, I wouldn't. Again, I look at all -- I think we look at all competing needs for capital and depending on the outcome of the Rosemont process, depending on the outcome of our extensive exploration, we're going to have to evaluate at any given time the opportunity set versus expanding those returns. But it's definitely and I know this is perhaps cool comfort but it's more than aspirational if we want to return to the world being a sustainable dividend payer over the cycles. But we also want to make sure we get our -- all of our asset base working in a fashion that will support that.

Greg Barnes -- TD Securities -- Analyst

Okay. Thank you.

Operator

Our next question comes from Fahad Tariq of Credit Suisse. Please go ahead.

Fahad Tariq -- Credit Suisse -- Analyst

Hi, good morning. Just following up on the last question but more related to capex, as you think about the 2021 guidance, maybe can you give some color on how much of the $340 million is kind of the deferred from 2020 versus maybe just higher pre-stripping or stripping cost at Peru? Like, I'm just trying to get a sense of -- obviously the overall number was a bit higher than expected. I'm just trying to get a sense of how much of that is deferrals versus the actual scope of the activities have increased? Thanks.

Peter Kukielski -- President and Chief Executive Officer

Sure, Fahad and thanks for the question. So in Peru, we deferred approximately $20 million of capitalized stripping from 2020 into 2021 because of the pause in mining activity during the pandemic. We also of course moved some capital associated with Pampacancha into 2021. And then at New Britannia quite a bit of our -- I think it was approximately $20 million of capital was moved from 2020 into 2021. So those are the primary areas of movement from 2020 into 2021 and the rest is largely consistent with what we had before. So we had telegraphed the tailings work that was going to be done in Peru previously for example, we had telegraphed the tailings work that was being done in Manitoba. But those are the key elements of what has been deferred.

Fahad Tariq -- Credit Suisse -- Analyst

Okay. And just that's helpful. Thank you. And a quick follow up on 2020 that was obviously the capital -- the capex was ahead of guidance. Now, is that most of that is chalked up to the land user agreements? Is that a fair assumption?

Peter Kukielski -- President and Chief Executive Officer

That is a fair assumption.

Fahad Tariq -- Credit Suisse -- Analyst

Okay. And then just lastly on that then -- you mentioned there's obviously a few land user agreements left for 2021 but most were completed in 2020. So should we assume just like a little bit higher versus the capex guide just to account for that, would that be a fair assumption as well.

Peter Kukielski -- President and Chief Executive Officer

I would say that it will not be material. So we have one remaining negotiation with one family left to conclude and we remain optimistic that that will be included in time to allow us to start mining activities in the second quarter. I would mention that that last negotiation -- the last negotiation is always -- is last because it's the most complicated. But we are a little bit frustrated as is the community of Chilloroya that it's taken so long. But we do believe that we are in the final stages of concluding it now and we do also think that the amount that it will entail will not be material.

Fahad Tariq -- Credit Suisse -- Analyst

Okay. That's very clear. That's it for me. Thank you.

Operator

Our next question comes from Jackie Przybylowski of BMO Capital Markets. Please go ahead.

Jackie Przybylowski -- BMO Capital Markets -- Analyst

Thanks very much everyone for taking my question. I wanted to switch gears and talk about Manitoba for a minute. With the 777 accident last year, you were so reshuffling things a little bit and maybe gave you an opportunity to test out some of the limits at Lalor. I see that you've raised the guidance for 2021 to mine 4,650 tonnes rather than the 4,500 tonnes run rate that you were previously assuming. Is there room to move that further? With 777 closing, does the Flin Flon mill become an option that you could factor into the plan ramp access would that be part of the plan as well? I know this is all probably coming out in March. But can you give us an idea sort of big picture what the opportunities are and maybe what your strategy might look like two, three, four years down the road? Thanks.

Peter Kukielski -- President and Chief Executive Officer

Yeah. Sure. Happy to do that, Jackie. Thanks for the question. We've seen outstanding productivity at the Lalor mine, where we averaged over 4,900 tonnes per day over the last couple of months. And that's been the result of several initiatives taken in 2020, including a bunch of things that we talked about before the new Lalor garage, the Mobilaris Mining Intelligence Technology system that allows us to get real time look at the operating at the operation and to optimize safety. But more than that, with the addition of people or the movement of people and equipment from 777 to Lalor during the shaft outage at 777, we were able to test the entitlement at Lalor. And you know we expect that we can probably achieve an additional 650 tonnes per day up the ramp at Lalor, which previously we'd not done before. So I think that provides you with a sense of what might be possible. Cashel would you comment any further on that or?

Cashel Meagher -- Senior Vice President and Chief Operating Officer

All I'd add is that, obviously, we have the installed capacity to treat that material after it comes up the ramp and the shaft in Snow Lake itself. We don't need to keep obviously the Flin Flon mill open. Stall itself last year as Peter said in his text was over 3,800 tonnes a day and I think recently we achieved over 4,000 tonnes a day there and the design capacity for New Brit is 1,500 tonnes a day and I'd remind people that quite often when we've refurbished and/or we built some of these new processing facilities quite often in the end we exceed that throughput capacity that is in the design like we did in Constancia. So with that, we're over 6,000 tonnes a day capacity and like Peter said, we're currently hoisting over or close to 5,000 tonnes a day at Lalor so with an extra 500 or 600 up the ramp we start getting what is the future of Lalor. And I think we'll have some clarity for that at the end of March.

Jackie Przybylowski -- BMO Capital Markets -- Analyst

That's great, thank you. And maybe just a follow-up question on Manitoba, the guidance that you gave last night for 2021 at Manitoba. If I'm comparing that with the guidance that you gave around this time last year, it looks like your zinc production for this year is lower than you'd previously expected and maybe the precious metals are higher. You've broken it out a little differently before but if I use the same conversion ratio, looks like your precious metals are higher, is this a function of maybe just changing the mine plan? Are you are you accessing a different part of the Lalor ore body in 2021 than one you had previously planned or what's driving those changes?

Cashel Meagher -- Senior Vice President and Chief Operating Officer

Yeah. I think what it is, it's a preparation the Manitoba team is actually stockpiling some of our pre-test ore out of Zones 25 and 27 which are our gold zone and our copper gold zone. Also there's been a focus to prepare those zones and mine those zones more intensely to take advantage of the higher grade. And in any sort of NPV optimization you're looking for the value of ore and the margin on the value of ore rather than a metal itself. And so with these optimizations what we see is, is we're seeing that value more in the gold end of it. We'll continue to mine zinc. But obviously the Lalor zinc grade is declining as the mine ages. And we took advantage obviously of the zinc upfront because the zinc was in the shallower part of the mine in the first part we access. We access that higher grade first. So we're doing the same with the gold now in late 2021 and again with the mine plan that we will publish in March, it'll give more clarity to that NPV optimization.

Jackie Przybylowski -- BMO Capital Markets -- Analyst

Perfect. That's it for me. Thanks very much, Cashel and Peter.

Peter Kukielski -- President and Chief Executive Officer

Thanks.

Operator

Our next question comes from Dalton Baretto of Canaccord. Please go ahead.

Dalton Baretto -- Canaccord Genuity -- Analyst

Thanks. Good morning Peter and team. Peter sticking with Manitoba and probably a bigger picture question for you, while you were speaking copper went up to $4 a pound and gold's in the $1,700 now and you were just a few months away from the new mine plan as well as the completion of New Brit. How are you thinking about that business now just in the context of your portfolio?

Peter Kukielski -- President and Chief Executive Officer

Dalton, we're loving it. It doesn't change our view with respect to how we're focusing on the assets you know. So as I've said consistently over the last few quarters we're in delivery mode right now and we are singularly focused on getting New Brit refurbishment up and running so that we can deliver those gold ounces as well as enhanced copper recoveries as well with what we're talking about with Stall mill enhancements. So once you've completed this work and we've done all of this optimization work through the rest of the year, then I think we can pause and we can think of what it might mean.

But to some of the questions that you heard before we really, really want to accelerate cash flows in this company and take advantage of the current environment so that we can actually start pursuing other initiatives and returning cash to our shareholders so again, and as I've said before no apologies for cash flows. We think this business is a great business. We think that there's a lot of potential to be exposed through continuing with our optimization efforts and performance improvement efforts in Manitoba. And some time we'll pause and we'll see what that all means us. But we are on a rip right now to try to deliver and we're not getting defocused by what the world might be or what it might mean later on.

Dalton Baretto -- Canaccord Genuity -- Analyst

Okay, great. And then just maybe speaking of some of these other initiatives, so on Rosemont you've got a decision now coming sometime in H2 and -- fingers crossed for you guys. But what happens if it's not successful? What do you do then and how fast can you move on some of these alternative options?

Peter Kukielski -- President and Chief Executive Officer

That's a great question. So look, as I've always said, we have -- we continue to remain focused on the appeals process as our primary area of focus. But at the same time we do continue to pursue alternatives. What I can say is that I am convinced that we will build Rosemont in one way or another. So while we wait for the decision to be rendered, we continue to investigate other opportunities. We continue to look at expanding our resource base. But I think let's wait for that decision and then we'll have a much clearer picture. But we will -- I believe we will develop Rosemont.

Dalton Baretto -- Canaccord Genuity -- Analyst

Okay, great. And then just maybe one final one from me. With regards to the expired CDA's particularly in Peru, one in the copper price and an election coming on April 11 and just given what happened with [Indecipherable] last year are you all concerned?

Peter Kukielski -- President and Chief Executive Officer

Dalton no, we're not concerned, in short. The reason why I say so is that -- in Manitoba we haven't had a strike in 20 years. We have a good relationship with our employees. And we continue to or we haven't had a strike -- we had one small strike in 20 years. But we have a great relationship with our employees. We understand what the issues are. We are in dialogue with them. We don't believe that this will end up in an interruption, and in Peru the same thing. We are in discussions with our employees. There are a couple of elements that remain to be resolved. But at the end of the day, I don't think that it will result in an interruption. So short answer to your question is that while we remain focused on it and we are of course dialogue with our employees is incredibly important. We are not concerned about interruptions.

Dalton Baretto -- Canaccord Genuity -- Analyst

That's great. Thank you Peter.

Peter Kukielski -- President and Chief Executive Officer

Welcome.

Operator

Our next question comes from Stefan Ioannou of Cormark Securities. Please go ahead.

Stefan Ioannou -- Cormark Securities -- Analyst

Okay. Thanks guys. Yeah, I'm just curious shifting gears to the exploration just on the exploration particular north -- regional exploration north of Constancia right now that's now under way. If I remember correctly there is a pretty compelling geophysical anomaly there. Can you just maybe comment like -- on how big the drill program is there to start with? And is it -- can you remind me, is it sort of a near surface target or is it something that maybe a bit deeper?

Peter Kukielski -- President and Chief Executive Officer

Yeah, So I'll give you a few comments and then I'll let Cashel expand a little bit. So we only have one drilling program under way at present, which is on the Quehuincha North property. With respect to Maria Reyna and Caballito, we are negotiating with the community of Uchucarcco in order to get surface rights to start -- to allow us to start drilling and then we have to go through the permitting process including Consulta Previa process, which would deliver the permits required. Our assessment under the current law regime is that it will be unlikely that we will start drilling before the end of this year or early next year on those targets but we are continuing to drill at -- we are drilling at Quehuincha North and we expect to be able to talk to -- speak to some of those results in the quarters ahead of us. Now, with respect to the depth of mineralization, Cashel do you want to comment on that?

Cashel Meagher -- Senior Vice President and Chief Operating Officer

Yeah, all of what we're targeting is similar to Constancia and Pampacancha. It's all shallow targets generated from V10 geological mapping and ground geophysics. Quehuincha North, although it's not our number one target, as we speak about Caballito or Maria Reyna, it is a very good target and we're drilling there currently. So that's a great sign for us. So we got started early despite the rainy season here now. With that too we do have a permit to drill on another prospect in northern Peru that we're quite excited about. It's near the community of the city of a million people about three hours away on the mid-coast of Peru, Trujillo. The property is called Llaguen. So we're quite excited at the end of this rainy season to get started there with some follow-up advanced exploration.

There's quite a number of drill holes already there indicating mineral endowment. And then I would also mention our other exploration efforts in Manitoba, the follow-up on some targets like the 1901, between Lalor and 1901 itself. And of course, we're drilling currently in the Helvetia historical copper mining district that saw mining continuous from the late 1800s to the mid 1900 more following up. I think there's some 20 sort of pick and shovel underground operations. And currently we have three drills turning there. And I think we're going to go up with a couple more drills and we're excited to talk about what we see there geologically. And when we get fulsome report on all our assays both the total copper and the sequential copper assays, we're excited to report those along in the timeline with our two mine plans at Constancia and Lalor.

Stefan Ioannou -- Cormark Securities -- Analyst

Okay. Okay. Good. And maybe just on the Manitoba is all the exploration there then focused right now around the epicenter of sort of Lalor and 1901 or is there any sort of broader regional stuff looking maybe under that sort of [Indecipherable] and whatnot?

Cashel Meagher -- Senior Vice President and Chief Operating Officer

Yeah. Right now the focus is that Chisel Basin itself to really understand what is the endowment available to us to optimize. Now the two plants we have the base metal and the gold plants that are within truckable distance to Snow Lake. So that's the principle focus right now in Manitoba. And as I said, the other focus are some of the quite compelling targets we have North of Constancia at Llaguen, and of course adjacent in north to our Rosemont Deposit.

Stefan Ioannou -- Cormark Securities -- Analyst

Okay, great. Thanks very much guys.

Operator

[Operator Instructions] Our next question comes from John Tumazos of John Tumazos Research. Please go ahead.

John Tumazos -- John Tumazos Very Independent Research -- Analyst

Thank you very much. Congratulations on all the progress. With the good copper price, are there any mitigations you might do given the historic volatility of the copper price or the company, such as buying puts or raising equity to repay debt? Secondly, what is your minimum size threshold for pursuing new projects? We know there is Rosemont and Mason in the various zones in Manitoba. But there might be some medium-sized copper projects that look a lot more robust with the copper price rebound.

Steve Douglas -- Senior Vice President and Chief Financial Officer

John thanks for your question. Steve here. I think your question is two sides of the same one. You kind -- and I don't want to -- if I misread, please tell me. But I think your first question is do we have the intent to perhaps hedge to take advantage of this robust copper environment? And our traditional answer has been no. We like the exposure to the spot market. It's been rewarding thus far. And I think our shareholders appreciate the fact that we have not taken that joy out of the copper price. So I think that policy remains in place. We may strategically look at it now and again on a short term basis to try to -- when we typically do hedge quotational period pricing. But outside of that, we're not looking at this point in time on hedging the long term. If we're in the midst of building an asset like a Rosemont or something, that the financing conditions that maintain certain cash flow levels, we might entertain that.

But then again, that would be short term and will be looked at from the development perspective. And as it relates to raising equity to repay debt, I think obviously the prices are robust. But as I've said on many occasions we're in the process today of transforming two assets through the acquisition [Indecipherable] and obviously through the refocusing of the Lalor and select camp on the gold assets and the new bid refurbishment. Both of those are going to generate substantial capital. And at this point I think raising equity would -- while it may be advantageous in terms of paying down debt it's -- I'm not sure our shareholders see it as the way when we're in a world of returning in a very short order to generating significant free cash flow as a consequence of the pricing. And the -- we are planning the changes we're making to the portfolio so there aren't any thoughts in the near-term where we issue equity.

John Tumazos -- John Tumazos Very Independent Research -- Analyst

What is your minimum to size threshold?

Peter Kukielski -- President and Chief Executive Officer

John, we don't really consider things in terms of minimum size because if you look at some of the projects that we are undertaking at our brownfield sites we have no shame in investing $20 million for -- a one year payback for example. So we don't think in terms of minimum size thresholds. In bigger picture when we think in terms of our production profile, then I think the minimum threshold you're referring to might be more appropriate. But again, it's a matter of returns. If we could put into production quickly and easily at 20,000 tonnes a year copper producer we would consider it provided the returns are right. Obviously we have the capacity to develop much larger assets so we look what's optimal in the context of -- good for the organization and what our technical and execution skills might permit. So there's no hard and fast answer but over time for sure we would like to be expanding our copper production profile.

John Tumazos -- John Tumazos Very Independent Research -- Analyst

Thank you. The latter answer is most refreshing.

Operator

This concludes the question-and-answer session. I would like to turn the conference back over to Candace Brule for any closing.

Candace Brule -- Director, Investor Relations

Thank you operator and thank you everyone for participating today. Please feel free to reach out to our investor relations teams. If you have any further questions. This concludes our call and you can disconnect your lines now.

Duration: 56 minutes

Call participants:

Candace Brule -- Director, Investor Relations

Peter Kukielski -- President and Chief Executive Officer

Cashel Meagher -- Senior Vice President and Chief Operating Officer

Steve Douglas -- Senior Vice President and Chief Financial Officer

Orest Wowkodaw -- Scotiabank -- Analyst

Greg Barnes -- TD Securities -- Analyst

Fahad Tariq -- Credit Suisse -- Analyst

Jackie Przybylowski -- BMO Capital Markets -- Analyst

Dalton Baretto -- Canaccord Genuity -- Analyst

Stefan Ioannou -- Cormark Securities -- Analyst

John Tumazos -- John Tumazos Very Independent Research -- Analyst

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