Hudbay Minerals Inc. (HBM) Earnings Call Transcript & Summary

Thank you for standing by. Welcome to Hudbay's Copper World Pre-Feasibility Study Conference Call. [Operator Instructions]. I would like to remind everyone that this conference call is being recorded today, September 8, 2023 at 8:30 a.m. Eastern Time. I will now turn the conference over to Candace Brule, Vice President, Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to Hudbay's Copper World Pre-Feasibility Study Conference Call. This morning, we announced the results from the pre-feasibility study on Phase 1 of the Copper World project and filed the detailed technical report on SEDAR+. A corresponding PowerPoint presentation is available on the Investor Events section of our website, and we encourage you to refer to it during this call. 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 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. Our presenters today include Peter Kukielski, Hudbay's President and Chief Executive Officer; Andre Lauzon, our Chief Operating Officer; Eugene Lei, our Chief Financial Officer; and Olivier Te Changan, our Senior Vice President of Exploration and Technical Services. In addition, Javier del Rio, our Senior Vice President of South America and the U.S.A. will be accompanying the team for the Q&A portion of the call. On today's call, we will be reviewing the highlights of the Phase 1 pre-feasibility study, provide further details on the new simplified project design, the steps taken to derisk the project since the PEA was issued last year. and a discussion of the many optimization and upside opportunities. And now I'll pass the call over to Peter Kukielski.

Thank you, Candace. Good morning, everyone, and thanks very much for joining us. We are very pleased to be here today to present the results from our Copper World prefeasibility study for Phase I. This study significantly enhances the economics and derisks the project through higher levels of engineering, a simplified project design, lower upfront CapEx and a longer mine life. Copper World Phase 1 is a stand-alone operation requiring states and local permits only. Over the past 12 months, the team completed extensive technical work on Phase 1, and the results are summarized on Slide 4. Phase 1 has a mine life of 20 years, which is 4 years longer than the Phase 1 mine life that was presented in the preliminary economic assessment published in June 2022. The Phase 1 pre-feasibility study demonstrates attractive economics with a $1.1 billion net present value or NPV and a 19% internal rate of return or IRR using a $3.75 copper price. Phase 1 has a simplified project design as a traditional open pit truck-and-shovel operation with conventional flotation to produce copper concentrate and molybdenum concentrate. In the study, the processing facilities are expanded to include a concentrate leach facility in year 5, producing copper cathode and silver/gold dore. Phase 1 contemplates average annual copper production of 85,000 tons of copper over the 20-year mine life at average cash cost of $1.47 and sustaining cash cost of $1.81 per pound of copper. A variable cutoff grade strategy allows for higher mill head grades in the first 10 years, which increases action to approximately 92,000 tonnes of copper at average cash cost and sustained cash cost of $1.53 and $1.95 per pound of copper, respectively. Phase 1 has an anticipated initial growth capital expenditure of $1.3 billion. The project contributes meaningful annual EBITDA with $372 million on average over the mine life and more than $400 million on average over the first 10 years at a copper price of $3.75. Copper World is located in the southern part of Arizona in the Santa Rita Mountains, Southeast of Tucson, as shown in Slide 5. The deposits are within the Lalor mine belt a major porphyry province that includes several other world classes. It's well positioned near other large-scale copper mines in the region with excellent access to infrastructure and labor. Moving to Slide 6. I'm very proud of the team's efforts to successfully execute an alternative strategy for Copper World since 2019. After we received the Rosemont court decision in July 2019 that withdrew the federal permits, we embarked on a new approach by focusing on a project located primarily on our patented mining claims and one that would require state and local permits only. In 2020, we began exploration and condemnation drilling on adjacent patented mining claims and continue to hit mineralization, which we call the Copper World discovery. The drill program continued to expand following steady positive results. And in late 2021, we announced an initial mineral resource estimate on the new discovery. The success of the strategic pivot in Arizona was solidified with the release of our PEA in June 2022, where we defined a 2-phase mine plan. The strategy was designed to allow us to focus on Phase 1 requiring only state and local permits to advance the project and separate out the federal land permitting requirements needed for expansion in Phase 2. We have further derisked the project with the completion of our pre-feasibility study that incorporated advanced technical studies in Phase 1. The second phase of the project is expected to involve an expansion on to federal lands with an extended mine life and even higher project economics. The state permitting process was initiated in 2021 with the receipt of 1 of the 3 key state permits. We submitted the remaining state permit applications last year. These derisking efforts have resulted in what I consider to be a highly robust and attractive project that will create meaningful value for all of our stakeholders. And with that, I'll pass it over to our technical team to take you through the Phase 1 PFS results in more detail. So over to you, Andre.

Thanks, Peter. Good morning. Jumping to my first slide, Slide 7, key focus area for the pre-feasibility study was on evaluating several different site layout and flow sheet options for Phase 1 through additional test work and detailed technical studies. This resulted in a simplified project designed for Phase 1 that consists of four open pits and is now optimized solely on flotation of both copper sulfides and oxides. The work also led to a simplified processing flow sheet in the pre-feasibility study with a conventional sulfide flotation concentrator producing copper concentrate that is sold to market for the first 4 years. As Peter mentioned earlier, in year 5, the processing plant is expected to be expanded with the addition of a concentrate leach facility to produce copper cathodes and silver/gold dore. The plan contemplates a simplified site layout with the construction of 3 tailings storage facilities and provides increased storage capacity for 385 million tonnes, sufficient for 20 years of mine life for Phase 1. Phase 1 requires state and local permits only, which simplifies the permitting process and avoids the requirement for federal approvance. We have been working closely with the Arizona Department of Environmental Quality, or ADEQ, gathering supplemental information to ensure a robust and solid process is followed. And we expect to receive the two remaining key permits by mid-2024. Moving on to Slide 8. The work we did on simplifying the project design has resulted in a highly robust project with enhanced economics. The deferral of the concentrate leach facility to year 4 provides Hudbay with the financial flexibility to fully fund the development of the facility with operating cash flow or potential government incentives for critical minerals processing. We conduct a detailed test work on different concentrate leach technologies, including Glencore Technologies Albion process as well as low and high temperature pressure oxidation or high temperature pox. The tests indicate Albion and high-temperature pox yield the highest copper extraction rates in the range of 97% to 99% for all samples. Albion was selected as the preferred concentrate leach technology because it's simpler to operate. Its modular and offers flexibility to scale the plant and has significant lower asset neutralization requirements when compared to the high temperature pox. The advanced technical and engineering studies improve the project design with a simplified flow sheet that reduced the initial CapEx to $1.3 billion. The increased copper grades and extended mine life to 20 years in Phase 1. Not only did this work enhance the project economics, but it also significantly derisks Copper World. But we didn't get here overnight. This path to derisking Copper World is a result of the achievement of many significant milestones over the past several years, as outlined on Slide 9. Our exploration drilling completed in 2020 and 2021, successfully identified mineralization in areas Northwest of the former Rosemont deposit, which is now called the East deposit. Based on positive drill results, we acquired an additional 2,400 acres of private land to support the infrastructure and tailings for a state permit plan. In late 2021, we defined the initial mineral resource estimate for Copper World, which show higher grade areas closer to service than the East deposit. We completed the PEA in 2022, which combined the East deposit with the newly discovered deposits in a 2-phase plan with the first 16 years on private land before extending on to federal lands to bring the total mine life to 44 years. We commenced the permitting process with the approval of the mine land reclamation plan in 2021, which was revised for the larger plan in 2022. This approval by the Arizona State Mine inspector was challenged in State Court, but the challenge was dismissed in May 2023 as having no basis. We submitted applications for an aquifer protection permit and an air quality permit to ADEQ in late 2022 and expect to receive these two outstanding permits in mid-2024, as I mentioned earlier. We also released our 3P plan for sanctioning and financing copper world, and Eugene will provide more color on that later in the presentation. And with today's release of the pre-feasibility study, this de-risk plan demonstrates an attractive project for a minority joint venture partner, and we continue to expect to complete a JV partner process upon receipt of state permits and prior to commencing a definitive feasibility study. A made in America copper cathode produced at Copper World is expected to be sold entirely into domestic U.S. customers and would make Copper World the third largest domestic cathode producer in the United States. Producing copper cathode would reduce the operations total energy requirements and greenhouse gas and SO2 emissions by eliminating overseas shipping, smelting and refining activities. We estimate the project will reduce total energy consumption by more than 10%, including a more than 30% decline in energy consumption related to downstream processing when compared to a project design that produces copper concentrates for overseas smelting and refining. The pre-feasibility base case is expected to result in an approximate 14% reduction in Scope 1, 2 and 3 greenhouse gas emissions compared to flotation-only scenario. We plan to target additional greenhouse gas emissions as part of our company emissions reduction targets. The Copper World project is expected to generate significant benefits for the community and local economy in Arizona. Over the anticipated 20-year life of operation, we expect the company will contribute more than $850 million in U.S. taxes, including approximately $170 million in taxes in to the State of Arizona. We expect to create over 400 jobs directly and 3,000 indirect jobs in the region. We intend to engage in partnerships with local apprenticeship and workforce training programs across the skilled and technical levels to enable local to access these technical positions. And now Olivier will present further details on the pre-feasibility study. Olivier?

Thank you, Andre, and I will start on Slide 11. When looking at the PFS compared to the PEA, we've made several design improvements that have increased the production and economics. The total copper production increases from 1.4 million to 1.6 million tons despite removing oxide heap leach processing due to higher grades and longer mine life. While the average annual production over the mine life is relatively unchanged at around 85,000 tonnes of copper, the high grade in the first 10 years increases the annual production to 92,000 tonnes on average. The operating costs were also updated to reflect the current pricing environment, and the cost increased due to a reduction in the size of the low-cost concentrate leach facility and increase in the strip ratio and longer haulage distances in the mine. Phase 1 has a mine life of 20 years, which is 4 years longer than the Phase 1 mine life that was presented in the PEA due to an increase in the capacity for tailings and waste deposition as a result of optimizing the site layout. As Andre mentioned, the initial CapEx decreased to $1.3 billion from $1.9 billion as a result of changing the size and timing of the concentrate leach facility to be at 50% of the maximum design capacity or 70,000 tons starting in year 5 as well as all associated leaching infrastructures such as the SX/EW facilities and also due to mining fleet financing. Given the modular nature of the Albion technology, there remains the opportunity to increase the scale of the concentrate leach facility up to a maximum design capacity of 140,000 tonnes in the future, which will allow for the processing of additional internal concentrate or third-party feed and further support the production of domestic copper cathodes in the U.S. Together with the pre-feasibility study, we updated the mineral resource estimates for the project, which increases the global measured and indicated mineral resources to 1.2 billion tonnes at 0.42% copper, representing a 4% increase in total in-situ copper. On Slide 12, you can see that the project generates attractive value and returns in all scenarios. For example, at $4.25 copper, the Phase 1 NPV increases to $1.7 billion and the IRR increases to approximately 26%. In the flotation-only scenario and using a copper price of $3.75 per pound, the project has an NPV of $863 million and an IRR of 19%. At a copper price of $4.25, the flotation-only NPV increases to $1.5 billion and the IRR increases to 26%. These economics demonstrate the project is robust even without the concentrate leach facility, providing Hudbay with the flexibility to optimize the project in the future through funding the concentrate leach facility with operating cash flow or potential government incentives for critical mineral processing. Slide 13 shows the year-by-year production profile for Phase 1. You can see the improvement in cash costs and sustaining cash costs starting in year 5 when the low-cost concentrate leach facility commences operation. You can also see the higher production levels in the first 10 years associated with variable cut-off strategy and expected higher grades earlier in the mine plan. As part of the work on the pre-feasibility study, we updated the mineral resource estimates as summarized on Slide 14. It shows the 4% increase in contained copper in measured and indicated, I mentioned earlier. In addition, contained copper and milled feed increased by 41% in the PFS compared to the contained copper in milled resources in Phase 1 of the PEA mine plan due to higher grades and the flotation of both copper sulfides and oxides. We have identified many opportunities to further enhance project economics, reduce environmental impacts, increase annual production and extend mine life, which are in addition to what is shown in the Phase 1 PFS. Some of these opportunities are noted on Slide 15. There is significant potential for Phase 2 mine life extension as approximately 60% of the measured and indicated resources are not included in the PFS and would be unlocked through additional land acquisition or expansion on to federal land. There exists optionality around flexing the size and timing of our concentrate leach facility. If the Albion is sized at 100% capacity, it is expected to increase the base case NPV to over $1.3 billion and reduce total GHG emissions by 25%. We will continue to explore options for government-incentive programs to help fund the concentrate leach facility construction. This may allow us to move construction earlier or to enable us to build for a larger capacity with improved economics. We believe we will secure federal permits well before the end of the 20-year mine life of Phase 1, which would allow mining of more higher value tons earlier in the mine life and significantly increase annual copper production, enhance project economics and IRR. We will also look at renewable energy sources to reduce additional costs and to further reduce our environmental impact. I will now pass it over to Eugene.

Thanks, Olivier, and good morning, everyone. Copper World Phase 1 has 385 million tons of proven and probable reserves at a reserve grade of 0.54% copper, as Olivier mentioned. This is the highest grade open pit copper mine when compared to other development projects in the Americas at the advanced PFS or FS stage as shown in Slide 16. Not only does it have the highest copper grade, but also offers the best combination of low financial and low execution risk. Slide 17 shows that Copper World Phase 1 is one of the lowest risk copper projects when compared to the same list of copper projects in the Americas, with a lower level of aggregate construction CapEx and a lower level of development complexity, given the project's advantaged location at low elevation and in the U.S.A., just 26 miles south of the mining hub of Tucson, Arizona. The 3P plan for sanctioning Copper World that I laid out in October 2022 is shown on Slide 18. This plan ensures that Hudbay will be in the optimal position to advance the project with the lowest cost of capital and the highest risk-adjusted return on investment. Our three prerequisite plan includes specific targets and milestones that would need to be achieved prior to making the next significant investment in this project. The first prerequisite is permits. We will need to receive all key state level permits required for Phase 1, which is well underway, as Andre already noted. The second is a plan, and this includes the completion of a definitive feasibility study with an IRR greater than 15%. Today's PFS is an affirmation that we're also well along the way on that plan. The third is a prudent financial strategy. And this multifaceted strategy contemplates a committed minority joint venture partner a renegotiated precious metal stream agreement, a net debt-to-EBITDA ratio of less than 1.2x at the corporate level, a minimum cash balance of $600 million and no more than $500 million in project level debt. We intend to complete a minority joint venture partner process after receiving the key remaining state permits and prior to commencing a definitive feasibility study, which will allow the potential joint venture partner to both participate in the funding of the definitive feasibility study activities in 2024 as well as the final project design. The opportunity to sanction Copper World is expected in 2025 based on current estimated time lines. Slide 19 illustrates Hudbay's funding requirement for Copper World. It shows that with the new upfront CapEx of $1.3 billion, this project is easily fundable within the confines of our 3P financing strategy. Under the existing precious metals stream agreement with Wheaton, we are entitled to receive a deposit payment of $230 million for the delivery of gold and silver production from Copper World. The estimated initial funding requirement for Phase 1 Copper World, net of the stream agreement would be $1.1 billion. We also expect to put in place up to $350 million of nonrecourse financing below the $500 million 3P constraint, representing 25% of the total CapEx, in line with our reduced financial leverage approach. This further reduces the funding requirement to approximately $740 million. And with the proceeds from the minority joint venture partner sale and the JV share of the capital contribution, Hudbay's remaining fund requirement is now estimated to be just $250 million to $350 million. again, prudently below the 3P limitation. This significantly enhances Hudbay's development project risk and the return and the IRR increases to more than 35%. Lastly, the development of Copper World fits well within Hudbay's disciplined approach to capital allocation and our focus on building the company's enhanced copper production profile with strong capital efficiency. Complementing our recent acquisition of Copper Mountain in BC, the development of Copper World Phase 1 has a capital intensity per ton of copper that compares extremely favorably to similarly stage development projects and also recently constructed copper mines in the Americas as noted on Slide 20. I'll pass it back to Peter for his closing remarks.

Thanks, Eugene. All right. Slide 21 shows that global copper market fundamentals are expected to be strong with the structural deficit emerging in the medium term. Global mine production and available smelter capacity are expected to struggle to keep pace with metal demand boosted by the green energy revolution. United States is expected to remain a net copper importer during this period and domestic supply will be required to help secure growing United State's metal demand related to increased manufacturing capacity, infrastructure development, bolstering the country's energy independence and domestic EV battery supply chain and production needs. The supply side deficit is further exacerbated by the lack of new copper projects. Slide 22 shows that Copper World is one of the few projects with significant copper production located in a stable jurisdiction, and it is estimated that only 8% of the new global supply is coming from North America. This provides a real opportunity for Copper World to be a meaningful copper producer in the United States. Copper World Phase 1 is the next leg of significant copper growth at Hudbay and positions us to become a more than 200,000 tonne copper producer by the end of the decade. I'll conclude on Slide 24 with key takeaways from the Copper World PFS. Copper World is an attractive copper growth project for Hudbay and our stakeholders, generating strong project returns and adding significant copper production. The Phase 1 plan is derisked and offers a simplified flow sheet that provides project optionality. Copper World is expected to be the third largest cathode copper producer in the United States with made-in-America copper that brings many benefits to the community and local economy in Arizona. And Copper World Phase 2 offers significant upside potential to further enhance project economics and to extend the mine life well beyond 20 years. And with that, we're pleased to take your questions.

[Operator Instructions]. Our first question comes from Dalton Baretto of Canaccord.

And congratulations on getting this done. A couple of quick questions, if I can. Just first of all, I noticed that you deferred the SX/EW plant in addition to the concentrate leach facility. And I'm just wondering, do the economics of the plant depend on the concentrate leach facility? Or is that just a function of kind of reducing your upfront CapEx?

I think the answer is best addressed by Andre with respect to why we deferred the oxide leach facility, and Eugene can touch on the economics.

Sure. I'll start off, and then I'll hand it off to Olivier. Thanks for the question. So I believe the first part of the question was around the SX/EW and then related to the concentrate leach. So in this phase of optimization that we went through is -- as we've discussed many times, is we're constrained about the footprint, if you will, of the land that we own on our private land. And the teams have gone through an optimization process on what is the most profitable or that we can potentially mine on this, call it, restricted footprint. And so what was done in this stage was going through, and it actually made sense because the grades were so high in some of the oxides that we made more money in processing it through the milling facility. And so we -- and we targeted much higher grades going through the mill. And so the SX/EW plan is not in this plan rate at the moment. And we focused on using the land for higher value material. The plan is over to stockpile that material in an area for future potential production. Again, I mean it's not included in the economics because we just used up all of the land for the best value materially. In terms of the timing of the leach plant, the intention was for it to derisk it in the sense by paying for some of our operating cash flows. And as we mentioned, there's lots of money going around for government incentives and the like. And so we wanted to take the opportunity to look at that as well. Olivier, is there anything that you wanted to add to that.

No, just quickly. So in terms of the SX/EW, there were two components of the SX/EW: one was needed to basically follow on the leaching of the concentrate, the copper concentrate -- the leaching of the copper concentrate; and the other one was the leaching of the oxide in the PEA. Obviously, the SX/EW part of it is linked to the start of the concentrate leach facility, which occurs in year 5. So it makes sense to push the start of the SX/EW to time it at the same time than the construction, the leaching of the concentrate. And then the other component was the leaching of the oxide. For the oxides we kind of change and simplify the layout and the design of the project. And now about half of the oxides are now milled, and the other half is actually stockpiled for potentially further processing later on. But then it didn't make sense to start building an SX/EW from year 1. So now SX/EW enters the fray in year 5.

Eugene?

And maybe just to wrap, the project design is economically designed to produce the highest NPV at an early stage with the lowest level of capital intensity. And so by deferring the concentrate leach and the SX/EW at the same time, that achieves the higher EBITDA and cash flow at the front end of the project. The -- both facilities aren't actually needed in this project to make the project economic. As you can see on Slide 12, the flotation-only design has an $850 million NPV without both options in year 5 as well.

Dalton, if I can just add one more comment. As you know, I'm also a project guy. And so when I look at this through a project development lens, you significantly derisk this project by separating the two. So in the first -- the beginning of line, all we're doing is we're building the same concentrate effectively that we built at Constancia, although we're doing it right next to infrastructure and not at altitude. So it becomes extremely simple. So we've derisked the project execution methodology set significantly by doing this, too.

Understood. That's great context, guys. I just want to jump on to the cost side of things there. I noticed the mining costs jumped substantially from the 2022 number. And I know Olivier mentioned longer haul distances, but is that really just it? Or is it something else that's going on there?

Olivier?

Yes, I can take that one. So basically, one thing that we've introduced in this PFS compared to the PEAs, the concept of the variable cut-off strategy. And with a redesign also of the tailings and waste rock facility disposal, we gained some more space. And so we're mining a lot more from the East deposit in the PFS than in the PEA, which increases both the strip ratio and the haulage distance because the East deposit is further away from the mill. So that is the main reason for the increase in mining costs in addition to adjusting to the inflationary environment, adjusting diesel price and other adjustments just to reflect the current pricing environment.

And maybe one last one before I jump back in queue. Peter, I noticed that you're now guiding to receiving your permits mid-2024. I think as recently as May you were guiding to year-end this year. I'm just wondering, what's going on in the background there that's causing you to delay your guidance there?

Yes. I think, look, Dalton, it's out of the abundance of -- I'm just trying to be as realistic as we can. And we're looking at what sort of the most realistic scenario is. The state permitting process is pretty simple in the sense that it provides for a specific time line with respect to the -- what -- the time that the state has available to issue those permits. And they also have a period here in which they can make a request for clarification, which stops the clock for a little bit. We understand what that means. We understand those clarification requests have been made. We've engaged very significantly with the Department of -- the Arizona Department of Environmental Quality. And what -- when we're guiding towards the middle of the year, that sort of represents our estimate of what the maximum time line could be. It could come earlier, but our estimate, we're just trying to be conservative with saying that it's midyear. Andre, anything you would add to that?

Yes. Just as the process has been very active. We've been working together with the ADEQ since the time that they accepted the administration review and back and forth. In fact, we initiated a drill program over the course of the summer to provide some additional information to have that much better confidence in terms of the defensible permit, if you will. So we've been working very, very closely back and forth. It's very detailed, and we're very confident on the outcome that we're going to get when we get the final permit.

Our next question comes from Matthew Murphy of Barclays.

Yes, Peter, I'll agree with your comments that it's nice to see a simplified approach upfront that derisk things. So -- and then on the flip side, I guess, the two detrimental impacts that Dalton's questions raised were the run-of-mine leach being removed and the mining costs being higher. Were there any other detrimental changes? I'm just trying to figure out, I guess, at $3.50 copper in the PEA, the IRR was 17%, now it's 16%. So a very modest change for lower CapEx, but wondering if there's anything else in there.

Thanks very much for the question and for your generous comment, Matt. I actually don't see those elements that Dalton raised as being negative. In fact, I think what we're trying to do here is be conservative with our estimation of the time line. It in no way impacts the time line associated with the 3P plan that Eugene outlined back in October last year. We still estimate that we will be in a very strong position to be able to sanction this project on the same time line as we estimated back last year. I just think that I would rather be a little bit more conservative with what we put in front of you sort of get by 1,000 cuts if it does take a little bit longer. So this is what we estimate is true. Olivier, anything else you would add?

I just want to add, the higher strip ratio and the longer haulage distance to mine the East deposit is, in fact. A plus. So the reason why we're mining an area which is a higher strip ratio and longer haulage because it has higher grade. So the net impact on the project is actually positive. We would not do that if it wasn't having a positive impact on the project. So it is a positive impact, in fact.

The benefit of mining sulfide only to start is a positive impact to cash flows and NPV. And the deferral of the oxides is an economically positive decision to ensure we have higher grade at the front end. And if you look at where the cash cost of this asset are at approximately $50 -- $1.50 per pound, it's in the first quartile of new development projects, particularly in -- at low elevation.

And if I just add to both of them as well as by -- not only on grade and metal production, what the configuration of not having the SX/EW, which is a layered, had engineered at a slope. We're able to put significantly more material and mine an additional 4 years of mine life on that smaller footprint. And so I think it was done with reason like Peter had mentioned is we see it as a positive thing.

Okay. And then could I just test the CapEx number, I guess, the -- like you say, it's pretty low capital intensity. So does that number reflect a current cost of building a new mill? Or might we see some inflation in that when you ultimately go to definitive fees?

So we escalated and we did studies to today's dollars, so this is a today price. There's -- the major reductions in CapEx are mostly with the association of the deferral of the leach facility, which simplifies it. The SX/EW, which had some significant capital expenditures to process the oxides and leach oxides is not in this plan as well as well as the leasing of equipment. And Olivier, if you wanted to comment on...

The scope has changed. So -- of the initial CapEx of the initial investment. So it's not a lower CapEx than in the PEA's scope for scope, but it's a different scope. So of the initial investment. So as Andre just mentioned, it's basically pushing out by 4 years or 5 years, actually, the concentrate leach facility and associated SX/EW and also the financing of the mining fleet that was initially purchased in the PEA, which is now financed and taken out of the initial investment.

Yes, that's a big difference, too. And I'll stress again what Andre said is that the estimate is based on current pricing. So all the pricing was updated to incorporate inflation since the time of the PEA. And the operating numbers include current labor costs, et cetera. So -- and then on top of that, we've added what we think is reasonable contingency too. So costs are very current. It's a much more robust estimate than we had in the PEA, which is why it's called the PFS.

Our next question comes from Ralph Profiti of Eight Capital.

Andre and Olivier, you both talked about this stripping ratio and seeing also there's a higher amount of pre-stripping and as well as the higher strip ratio in the early years. And so my question is, after the permits are received, but before the financing package is put in place, could we see some of sort of a phase of construction de-risking ahead of that financing package that you're going to be prepared to on a 100% base? Put some money towards that higher spending that's going to be done on CapEx in those early years?

I'm not quite sure if I understand the question. Are you asking is there early works? Is that...

Yes. The degree of spending on early works post permitting, but before financing package. Just wondering if that quantum given that a significant amount higher pre-stripping and higher strip ratio in the early years, yes.

So the answer is no. So right now is -- our plan is to get the permits, get a partner. Partner is going to participate in doing the definitive feasibility study. And then at that time, once we work with our partner, we'll decide if there's anything -- any early works that we would consider. But at the moment, there isn't any plan to spend any money or early works prior to sanctioning the project.

Okay. Fair enough. Eugene, it sounds like the $230 million from Wheaton Precious is sort of in the comfort zone of the quantum of what a renegotiated stream may look like. Just wondering if that sort of fits into how you're thinking about how that new deal is going to look where numbers may move around, but the actual quantum is within your comfort zone?

Yes. The $230 million number is under the current agreement, which was struck, I think, back in 2010 by Augusta. So -- but it does apply to the lands and the project. And the stream is a very good stream for Wheaton. And they haven't paid a deposit yet. So we expect with this project, we will renegotiate this agreement and other agreements with Wheaton to optimize it to our advantage and their advantage. But in terms of quantum, we don't expect extreme variance from the $230 million.

And Ralph, if I may add, I mean, Wheaton has been a good partner. We've had very, very successful outcomes of negotiations with them when things vary in the past. So we don't expect anything to be different this time.

Our next question comes from Alex Terentiew of Stifel.

Great to see the -- how the scope has changed on this project to optimize the land use. My question relates to that. I appreciate that this is going to be built on private and state lands. But I guess my question is, all the roads, ancillary infrastructure, any sort of power lines access to the site, will all that be on the state and private lands as well? When I look at the maps for the project, right now, it pretty much goes -- it takes up every last bit and goes right to the boundary. So I'm just wondering, will everything beyond that? Or will you need to go off of that? And how does that work from the permitting perspective to get? I understand accessing or using those lands for those sort of things is not nearly as much of a disturbance as developing the mine. But from a permitting perspective, how does that stuff work?

Sure. Thanks for the question, Alex. So it's a good question. So we are using up all of the private lands for all the facilities on site for milling, processing infrastructure, concentrate leach and the like. The services are provided to the site that are off-site. We have free access to the county roads for hauling material in and out much like the quarry is next door. So there is actually a mine directly next door to our property. It's a limestone processing facility. And they use the same road that we would to haul materials in and out of the site. For other ancillary infrastructure off-site, the pipeline to feed the water and the power line, those go across state land. And we already have existing right-of-way agreements with the state for those that are already in place. And so there's nothing new on that. In fact, that we also just extended the agreement for the power line agreement with the electrical authority as well. So those are all in place. So there's nothing outstanding.

Okay. So even there would be no need to deal with the U.S. Service or BLM to secure permits for any of that stuff?

No, the power line goes across the state land or the [across state land]. So it's -- so there's nothing -- there's no BLM or forced land in those areas. Phase 2, I think what we described earlier. So Phase 2 does expand the footprint of the mine pit and potential tailings facility on to federal lands. And then at that stage, we would look at the federal permitting process. But right now, with the land that we have right now, there's enough for everything on private land for a 20-year mine life. And all of the power lines and all the power lines and all the like are across state land, and we have rights of way for those.

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

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This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.