Lundin Mining's CEO Discusses Q4 2013 Results - Earnings Call Transcript

| About: Lundin Mining (LUNCF)

Lundin Mining Corporation (OTC:LUNCF) Q4 2013 Earnings Conference Call February 21, 2014 8:00 AM ET

Executives

Paul Conibear - President, CEO and Director

Marie Inkster - SVP and CFO

Paul McRae - SVP, Projects

Steve Gatley - VP, Technical Services

Analyst

Matt Murphy - UBS

David Charles - Dundee Capital Markets

Oscar Capraro - Bank of America Merrill Lynch

Kerry Smith - Haywood Securities

Operator

Good morning, ladies and gentlemen. Welcome to the Lundin Mining Q4 Conference Call. I would now like to turn the meeting over to Mr. Paul Conibear, President and Chief Executive Officer. Please go ahead, Mr. Conibear.

Paul Conibear

Thank you very much operator and thank you everybody for joining Lundin Mining this morning as we present our 2013 results. We’ve got the mandatory cautionary statements. We’ll be giving some forward-looking statements in the course of the presentation today.

Joining me in the presentation is also Marie Inkster, our Chief Financial Officer; Paul McRae, who is our Senior Vice President of Projects, and he will assist in answering any questions on Eagle at the end of the presentation. We also have Steve Gatley, our Vice President of the Technical Services who will assist in answering any operating questions again at the end of the presentation.

We had a pretty good year, 2013 substantially similar to 2012 in all material aspects. Our copper and nickel production was above the high-end of the guidance that we started the year with, and zinc and lead were in line with our guidance. On copper higher throughput at Neves led to better than expected production, when taking into account the aggregate of copper from both our own operations and from Tenke we came in at a 117,000 tonnes of copper attributable to the bottom-line for Lundin Mining. That was just about the top-end of the guidance that we had started the year with of 115,000 tonnes.

Despite Zinkgruvan issues in the early part of the year which took us the balance of the year to catch up on, overall for zinc production we’re in line with our expectations coming in with 125,000 tonnes of zinc in concentrate production from our own operations well in the range that we had guided at the beginning of the year. Tenke had another outstanding year under the very able operatorship of Freeport in Katenga. We broke records on tonnes processed grades of copper material recoveries were excellent and we had excellent cash flow that was despite having some fairly significant power disruptions in September which continued on into October.

On C1 cash operating cost basis overall our assets were in line with the guidance we’ve given in particular if you take into account the adjustments to actual byproduct credit pricing compared to budget and the exchange rates compared to U.S. dollar that we operate in.

Bottom-line financial statistics, we had revenues of 728 million from our own concentrate sales in 2013 pretty similar to that of 2012. Net income was $137 million that was $0.23 per share. We had operating cash flow of 154 million or $0.26 per share that obviously does not include the equity contribution that came back from Tenke which was outstanding. We had guided the market that we had hope to get at least 130 million from the Tenke investment.

Cash returned net after all expenses we achieved 142 million and that does not include 7.5 million that came back from the kokkola investment. So pretty close to 150 million in cash back to Lundin Mining from Tenke-related investment, big milestone for us last year.

Our finance team has ably put together a $600 million a very flexible borrowing facility which has enabled the investments in growth of the acquisition of Eagle of 318 million for the year and Freeport cobalt we invested with Freeport 116 million. At the end of the year those investments and drawdown of our debt facilities gave us a net debt of 112 million and net cash of 265 million at the year-end.

Just some looking at the adjusted non-cash items on net earnings 42 million in net earnings and adjusted for things like foreign exchange and that sort of thing 53 million in adjusted net earnings for 2013. Just a little bit more analysis of physical production changes year-upon-year 2012 versus 2013. On copper and this is our own operations not including Tenke, throughput was up, grade and recovery down year-upon-year and then we had a good positive contribution from Aguablanca which in aggregate enabled us to produce 66,000 tonnes of copper and concentrate compared to 64,000 the year previous.

On zinc we were up year-upon-year to almost 125,000 tonnes of zinc production compared to 122,000 tonnes. The major contribution to that increase in zinc production was additional throughput from Neves-Corvo as Lombador came online slightly better recoveries again improvements in the Neves-Corvo zinc facility and we were down overall in grade that was lower grades at Zinkgruvan compared to the year before.

On lead we were down from about 10% on lead which is partly throughput at Zinkgruvan and also grade and recovery. Aguablanca ramped up significantly in production and dropped more than 5,000 tonnes of nickel to our bottom-line with good margins.

Analyzing year-upon-year the change in earnings 2012 versus 2013 substantially we were down on earnings because of metal prices and some adjustments, timing of sales somewhat on volume and also on foreign exchange. We produced in Swedish krona, we produced in euro sell in dollars and both those currencies were quite strong last year.

Cash operating costs, we came in after byproduct credit at Neves-Corvo on a copper basis at $1.90 we had began the year guiding closer to $1.80 when you take into account the assumptions that we’ve made when we came up with $1.80 on foreign exchange and on the byproduct metal price is actually the performance on our cost per tonne milled at Neves-Corvo was basically bang on at expectations. Zinkgruvan did have production problems which we began to catch up with second half of the year but came in at $0.32 per pound of zinc production.

Aguablanca had quarter-by -quarter surprising us on the upside. We ended -- at the end of the year on average with $3.78 per pound of nickel produced, so excellent margins even in a tough nickel market. And Tenke had very good performance, continuing to be a first quartile copper producer at $1.21 per pound of copper and that was despite to having a weaker cobalt byproduct credit pricing than we would have hoped.

This next slide, Slide Number 10 has quite a bit of detail on it on the expected range of physical metal production from our own mines and some assumptions there on what Tenke will do, piggybacking on the back of sales guidance that’s come from Freeport for the year. You can see that 2014 compared to 2013 is more the same or improvements on zinc are pretty much the same on lead and copper and Eagle starting to contribute to more nickel production towards the end of the year.

A few slides on our operations and the outlook for each of those operations for the year ahead. These facts and figures are all dealt into significant detail in our financial statements and MD&A. We produced 57,000 tonnes of copper in concentrate and a record of more than 53,000 tonnes of zinc from Neves-Corvo as we ramped up production in the Lombador area, C1 cost of $1.90 with a pretty good zinc credit there I think more than $0.50.

Average copper grades like most mature mines continue to decline overtime 2.6% with the average copper that we fed through the mill with just under 85% copper recovery there. And where we were a little bit lower on grade and recovery we made up for tonnes, which is a capability which Neves-Corvo has always seem to really excel at. When they come under pressure in some areas on grade and recovery they can really move to the tonnes and they move them safely.

Outlook for Neves-Corvo this year and looking a little bit to the future here continue to expect very stable copper production between 50,000 tonnes-55,000 tonnes per year of copper in concentrate annually for the foreseeable future. And a steady ramp-up over the next three years of zinc production this year 60,000 tonnes-65,000 tonnes of zinc and increasing up to about 80,000 tonnes with very little capital investment to get that increasing production other than on the ground development. We are into these, big, massive higher grade, decent recovery zinc stopes along with any zinc we’re getting a little bit of lead now out of Neves-Corvo which haven’t been budgeted and we always find more copper in the outskirts of the zinc ore bodies again in the Lombador area.

So we’re trying to take advantage in steps as we move forward with the overall Neves-Corvo asset base in particular on zinc. We continue to do now Brownfield studies to see if we can increase the zinc production substantially almost double where we currently are over the next two or three years and see if we can do it economically with Brownfield to lower risk investment. It will take us about a year to complete whole studies on Neves-Corvo for zinc expansion.

Moving to Zinkgruvan, this historically was a 75,000 tonne to 80,000 tonne per year producer, last year it was disappointing at 71,000 tonnes at the low-end of our guidance there. The lower production of lead compared to previous years was substantially because of grade, a little bit because of volume. We have a good copper credit there, all this resulted in C1 cost of $0.32, I think we have budgeted appropriately in that same order of magnitude for this year being a little more conservative but we expect more zinc production this year from last year from that mine.

The pace drill system is a very mature system at this mine, it was not installed with redundancy, we’re now putting that redundancy in phases, it’s already operating better where we had 40% void still to be filled we’re moving that down to 20% to 10%. And back on-track there as this year progresses and that’s been taken into account in our guidance that we have given for the mine.

The outlook here Zinkgruvan should really revert back to its historic norms in production and have that 10 or 15 healthy years ahead. Last year we actually replaced more in exploration drilling than we mined. So overall this is a good operation and they are good margins.

Aguablanca as we’ve publicized we wished the mine were bigger, because its performance has been outstanding margins are very good. We made the decision last year to go underground. Otherwise the open pit was going to be closing in Q1 of 2015. So we believe this mine will be open and producing healthy margins albeit on a relatively small scale well until 2018. And we have guided it in the 450 range on nickel basis here. I would hope that, again that’s on the conservative end of things but this is quite a complex steep open pit. We have had strip stability issues in the past. So we’re going to continue to guide cautiously on production and production costs quarter-by-quarter here.

Tenke just had another great year, 210,000 tonnes of capital came out of here and an awful lot of cobalt another record in cobalt production, which -- this phase 2 expansion which was finished ahead of schedule and on budget, under budget, had a nameplate capacity of 14,000 tonnes per day throughput through the mill, our Freeport and TFM team continues to run this very strongly at times, on average over 16,000 tonnes a day, very good grades, circa 4% copper oxides and very good recoveries about 90% through the mill, producing very good cash distributions, repayment of loans to Freeport and ourselves here.

We cannot take for granted the power issues, not only in Congo body in Southern Africa where you’ve got Botswana reservoirs at some of the lowest levels in many, many years and other pressures on the Southern African Power grid here. The TFM senior management are working very closely with the DRC government, we are extremely important taxpayer and employer in the DRC and we are getting as much support as we can from the DRC authorities on power as they are able to give.

Big milestone not only record production in copper and cobalt and good cash operating cost, it’s obviously the contributions to our bottom-line of 142 million cash back to Lundin Mining. We are expecting the same order of magnitude here as long there's no surprises in production or metal prices. You should fully expect 130 million to 150 million back to Lundin Mining this year from this excellent operation. The phase 3 expansion, lots of people ask questions about it. There is no guidance from Freeport when that will advance. Our strong opinion is when it does advance it will be low capital intensity, very high return, oxides only. And one of the critical paths in advancing with another significant step in copper oxide production is becoming more self sufficient in sulphuric acid production.

We have a big plant, but we are buying surplus acid to enable the production levels that we currently have. So for us to step-up to phase 3 production, it’s economically viable for us to put in a large second sulphuric acid plant, import sulphur and be self sufficient on acid production. The sizing of this new plant coming in is bigger than we would expect phase 3 to need, again looking to the future of Tenke becoming a much larger operation and Freeport investing very strategically in this.

Eagle Project we’ve got Paul McRae on the phone to help answer questions on this, the overall construction schedule continues to be on time and on budget. We’ve got cementation on as the mine contractor they mobilized at year-end 2013. The mine is way ahead of the mill here. We’re doing underground development, doing a lot of drilling from underground now.

The mill itself, there is a beehive of activity there, lots of work going on inside the concentrator. It’s been a brutal winter, in the Northeast of the United States and obviously Central and Eastern Canada. So that has put us behind a little bit on some of the exterior work that we had hoped to accomplish over the winter, but we’re confident that we can catch up on that and fully on-track for production of both nickel and copper concentrates in Q4 of this year and bringing cash flow in from Eagle to the Company.

You can see a few pictures here of progress inside the mill building which is critical path. There is lots of mechanical equipment installation well advanced there. We’re pulling cable tray piping, so still it’s kind of the mature part of the construction program here, 70% complete was construction progress set at year-end and advance since then.

That's the summary of Lundin Mining’s performance in 2013, and a bit of a summary of where we expect to head here in 2014. We’re very happy with our asset base it I think benchmarks extremely well to the mid-tier base metal producers that we share the space with. We have high-quality long-life mines, Eagle adding particularly to the quality of that. Each one of our assets has some upside opportunity in exploration and our Brownfield’s expansion. Our risk profile, I think we’ve been rewarded for that in the marketplace, it’s very manageable and we’ve shown that we’ve had quite a bit of discipline on our growth investments to the things that we pulled the trigger on last year

But we like the increasing very blue-chip geographic diversification that Eagle is bringing to us to add to our European operations and the rich capsules from Tenke.

So I will turn it over to the operator now. Thank you very much for your attention and I welcome any questions.

Question-and-Answer Session

Operator

(Operator Instructions) And the first question is from Matt Murphy from UBS. Please go ahead.

Matt Murphy - UBS

Good morning, Paul. Wondering if you could just expand upon your comments at the end of the initial dialog there, basically you’re coming up to 2015 where you’re going to have some descent free cash flow and just wondering if you can expand or maybe rank what you see as the best uses of cash whether it dividend, organic growth, exploration driven growth or when you’re going to be more interested in another acquisition?

Paul Conibear

Yes. Matt, well I mean we’re really staying the course of the strategy that we had starting about three years ago I think we’ve been very consistent with that first priority is always our operations and our cash flows fostering the equity interest we have in Tenke has been very valuable for us. And with the growth criteria that we set three years ago we stuck to it, we danced with a lot of partners and left the dance alone until we came up with the quality of Eagle, invested aggressively in that and are dancing that. And when we were able to acquire Eagle we were pretty firm in our opinions that we’re going to get Eagle up and running successfully and then look ahead to the future. So, don’t expect significant acquisition activity from us until we’ve achieved those milestones on Eagle.

We’re expecting outstanding cash flows from Eagle continuing very good cash flows from Tenke in particular and the question that’s come up quite recently what about dividends, what about more growth those options are all open to us ultimately we do want to growth Lundin Mining from where we are today but in careful steps and bolt-on type steps we’re not looking at or considering any transformational types of initiatives. We’re very aggressive on looking for exploration stage, but those are not material expenditures at this stage. So, getting Eagle up and running, taking a look at where we are with nickel price, with zinc price in particular in 6 to 12 months time and then making decisions from them.

We have had discussions at the Board level several times on what to do with our buildup and cash and we see that significantly happening in 2015-2016. Dividends, the questions of dividends or some form of prudent return to shareholders is definitely a consideration. We have addressed it twice before back in 2012 and 2013. At that time our priorities were to land another high quality asset and we’ve done that. So, we have bank covenants in regards to distributions once the Eagle facilities have passed performance tests and we’re able to look at distributions and we will seriously look at that in 2015.

Matt Murphy - UBS

Okay, thanks. And then just a question on the Eagle exploration is this, it looks like drilling has been ongoing in Q4 and is this something that we’re likely going to see updates on throughout the year?

Paul Conibear

Yes, updates when there is material information our first priority is -- was getting drilling points open underground for infill and step out drilling on Eagle on the actual Eagle deposit. We basically have a cut off of I think of June 30th for assay information from all of our assets and then we publish updates on reserves and resources end of August to early September we’re going to maintain that this year timing.

We’re looking ahead we’ve got sort of a $5 million to $7 million exploration budget for Eagle. This year I’d contemplate similar levels or increased levels depending on what we find and really get Eagle hard over the next three years that’s our strategy. Our strategy for all of our assets is know them as best as possible don’t just rely on five years of production ahead on proven probable just know them as best as possible.

We’ll likely do some 3D seismic. We want to start drilling this Eagle East deposit because we know that there is higher grades in the key or the footwall of that our number one priority though is getting the Eagle up and running and producing. So, we want to make sure that the drilling effort somewhat which is from underground doesn’t at all get in the way of production development to get up and running, so yes we’re optimistic on the potential for more discovery at Eagle it will take several years I think to get there.

Matt Murphy - UBS

Yes, thanks.

Operator

Thank you. Your next question is from David Charles from Dundee Capital Markets. Please go ahead.

David Charles - Dundee Capital Markets

Hi. Good morning, Paul. Maybe just a quick question on the feasibility study on the Lombador standalone project, I just want to understand exactly what happened in the fourth quarter. Was that really related more to government issues or when you actually looked at it as a standalone it didn’t really shape up to your, to the return hurdles that you have?

Paul Conibear

I am not sure what you’re referring to in something happened in the Q4. But -- and we have done a lot of study work historically on how to get at Lombador and also Semblana and get them tucked in into our mine plans. The standalone shaft, the Greenfield shaft new shaft and new ramps that sort of thing really you would have to be very, very bullish on zinc price and take some risks that at the time I wasn’t prepared to take on sort of a five year program and hundreds of million dollars invested in that new infrastructure.

So, we shelled all that good work, we learned from it, with the increased information that we’re getting on mining out of Lombador now and the drilling results that sort of thing. We have been pressing forwards with first can we debottleneck the shaft? We’re quite confident we can significantly debottleneck the shaft. Now okay, let’s link this altogether into a proper study from stoke support. And the sort of the conceptual target we have that we’re progressing with, with Brownfields, lower risk lower intensity capital is by normally let’s say 2017, can we produce economically 120,000 tonnes, 150,000 tonnes of zinc from the overall Portuguese operations with relatively modest capital compared to Greenfields with decent returns, and not being too bullish on zinc price to make sure that we have good coverage there, because there is always a choice of what to do with our capital.

So we’re advancing the next milestone that we have internally, we’re pre-screening some options and optimization on Brownfields which will be early in Q2. And assuming that is positive that we get indications of good returns, we’ll progress with the full feasibility study which we’ll look at everything from -- look we're very confident in the volumes that we mine in zinc from Lombador, it’s a big massive ore body it will probably do more than 2 million tonnes a year itself. Can we connect that practically up to the Santa Barbara shaft and up surface without risking 50,000 tonnes to 55,000 tonnes of copper production, always leading that as croissant in that operation and can we have some decent returns from doing all that?

So I would expect we’ll be advancing with that full 10 to 12 month feasibility study, so that brings us into Q1 2015 for decisions on whether we go ahead with the big Brownfields investment in more zinc production. And some people on the call will remember that we did, I think about 120,000 tonne zinc study and published that in about September maybe of 2011, in which we brought a SAG mill, we have a brand new SAG mill there. So the separate plant expansion I think is pretty straight forward, it’s whether we can really flow all this material underground and up to serve us in a viable manner.

So, we’re progressing, we have got a high priority. If you take a look at where Lundin Mining zinc asset stand against another 6 to 10 publicly traded peers. We have got more than 9 million tonnes of zinc in Brownfields between Zinkgruvan and Neves-Corvo, text published contains zinc asset base is about 13 million, so we’re not far off that, it’s pretty special resource and we want to try to optimize it.

David Charles - Dundee Capital Markets

Without getting into the details, I mean you have already de-bottled the shaft if I remember correctly. I mean where do you think you can take the shaft hoisting capacity to and sort of in a general sense?

Paul Conibear

Well, we’ve taken the shaft from its historic levels of 3.6 up to 4.4, 4.5 we have done some software changes on shaft speed and acceleration, deceleration which I think probably takes it, we have tested it actually in peak periods to 4.6, 4.7. The objectives of the pre-feasibility level studies that we have done on debottlenecking the shaft has scenarios over 5 million one over 6 million and one approaching 7 million tonnes. Now each of those comes with different levels, not so much of capital investment but potential disruption to operations for the 5 million and 6 million tonne per annum scenarios we don’t think we can disrupt regular operations more than by a couple of months or something.

But if you are looking at a significant shaft expansion where you have to change the whole head frame and all the winders and dryers and everything, we’ll maybe unlikely to go to that level, because of disruption in regular production. Those are the magnitudes, our targets that we’re trying to see if they are viable 5 million to 6 million tonnes per year.

David Charles - Dundee Capital Markets

Excellent, thanks very much.

Operator

Thank you. The next question is from Oscar Capraro from Bank of America Merrill Lynch. Please go ahead.

Oscar Capraro - Bank of America Merrill Lynch

Thanks operator. Good morning everyone. Paul if I can just stay with that same thing in Neves-Corvo just to clarify you said that production could be up to 150,000 tonnes or 120,000 tonnes of zinc by what year? And then what would be your expected output in copper?

Paul Conibear

Yes, I’m not encouraging any analyst to put those kinds of scenarios into your models, but vis-à-vis we know we have asset base there. It’s a high quality asset base. We’re already mining zinc out of the top of Lombador it’s let’s say we’re mining about 0.5 million tonnes off of Lombador this year is something we know the ore body will be 2 million tonnes, so can we do it economically and for these types of things, we like to work backwards speculating on market price, strong zinc price. So we’ve not completely arbitrarily we set 2017 as the target and work backwards. So what can we do with that special zinc asset base by 2017.

I think practical numbers we have done studies which probably averaged I think 112 tonnes of zinc production and peaked to maybe even 140 that was the study we published a few years ago. So we’re kind of looking at nominally 150,000 tonnes. Can we produce that economically by 2017? That’s the target we’re working backwards from. We have some confidence that the shaft will do it and to highlight we never want to disrupt copper production, it has higher margins. So 50,000 tonnes to 55,000 tonnes of copper, our 10 plus year plan that stays in fact there is probably scenarios we’ll go little above it 55,000 tonnes maybe to 60,000 or something it’s in our 10 year plan that we published a year -- in January.

So keeping copper production in those orders of magnitude, 55,000 tonnes, without disrupting that how much zinc can we produce and can we get a good return on that Brownfields investment that’s the target we’re looking on.

Oscar Capraro - Bank of America Merrill Lynch

And just I guess a follow-on. When you say economic what sort of levels of zinc prices would you be looking at for longer term?

Paul Conibear

That’s a tough question. I mean there is 32 analysts follow us and probably they all have different price tax out there. I think it’s very possible for us to achieve better than $1.30 zinc year and 2016, 2017 is going come down after that or not. There is a lot of speculation there. What’s going to happen? Some people say $1.30 is not a zinc spike just as well. We’ve seen zinc very volatile in the past heading towards $2 for periods of time. We don’t run anything like that in our models and also $1.10 zinc why wouldn’t we be able to plan on that.

Oscar Capraro - Bank of America Merrill Lynch

Okay, great. Now, that’s helpful Paul. Then lastly on Zinkgruvan, if you look at the history level of cash cost has been ranging between $0.35 and $0.20 call it. You’re guiding to a number which is at the high-end of that range, do you think that that cost can trade down to something closer to a $0.20 is there something structural in the miner with the ground conditions that wouldn’t allow you to do that going forward?

Paul Conibear

We don’t guide towards that Oscar. Zinkgruvan really benefits from high net price, the swing factor when we get really good lead price on our C1 zinc basis dramatically improves there. But we’re not guiding below $0.30 moving forwards here. The mine is getting deeper. We’re taking initiatives to see if we can make a step change in our underground mining cost here. We’ve had underhand mining. We’re looking at down dip mining where we can defer some of the capital. We’re looking at new mining methods in certain areas.

We’re looking at significant expansion of our paste backfill system over the next couple of years or so to maybe look at the pace of being able to fill these big long-haul open stokes. But we are expecting us to be a $0.30 plus producer moving forward that’s what we’ve guided.

Oscar Capraro - Bank of America Merrill Lynch

Great.

Paul Conibear

There is no fundamental structural change occurring in our knowledge of the ore bodies moving forward so just more or the same perhaps you were getting a little deeper. We have big exploration drifts going into the Mellanby and Dalby mineral deposits and those are important things for the future of the mine. They’re not as deep as Burkland and Nygruvan where most of our ore is coming out of, but again those are just inferred assets right now. So it’s a couple of years ahead before those can be factored into the mine time maybe they will get some improvement on that picture.

Oscar Capraro - Bank of America Merrill Lynch

Thanks very much Paul.

Paul Conibear

Thank you.

Operator

Thank you. (Operator Instructions) And the next question is from Kerry Smith from Haywood Securities. Please go ahead.

Kerry Smith - Haywood Securities

Thanks operator. Sorry Paul I have got a bit of a cold here. But your cost in Q4 at Neves was pretty good at $1.75 and the grade was up a bit I just wondered what sort of grade expectation you might have for 2014?

Paul Conibear

I thought we had published that, or you can probably work backwards I mean yes John, I think I mean we’re looking at probably at the end of the day, looking at 2.5%-2.6% copper, and recovery is probably on average, substantially the same as we had in 2013.

Kerry Smith - Haywood Securities

Okay. So the grade in Q4 was that less out of reserve material or what was happening there?

Paul Conibear

I don’t know specifically, Kerry, I mean these guys always keep in the back pocket some of these high-grade massive sulphide strokes in lower corbel and inevitably human nature is what it is, as you get towards the end of the year and you're thinking of what bonus you've earned or not earned, the guys perform pretty well at the end of the day on that, that it all comes into a blend.

Kerry Smith - Haywood Securities

Okay. And then just the same question on Aguablanca, the grades were pretty flat sort of quarter-over-quarter but the cash cost were quite a bit lower in Q4 as compared to the rest of the year. I just wondered what the reason for that was, because your guidance for 2014 is obviously above what you did in Q4.

Paul Conibear

Yes, Marie?

Marie Inkster

Yes in the fourth quarter, Kerry we've built up quite a bit of stock pile in events of the rainy season so the mining costs were a bit less.

Kerry Smith - Haywood Securities

Okay.

Marie Inkster

We are trying to build up a bit to be safe in case we had major rainfall during.

Paul Conibear

Yes we had 500,000 tonnes of broken ore ahead of the mill, that’s beginning of the rainy season. Normally we’ve kept 150 to 200 before the rainy seasons, but because of the slope stability issues we had on the a slope pit wall there, our GM, Luis Marino kind of took some conservative steps in the mine work.

Kerry Smith - Haywood Securities

Okay, great. And then on Page 16 you talk about some resolution with the government on concession rates for Semblana, what exactly does that mean?

Paul Conibear

Well, we have got two broad degrees of rights in the Portuguese operations there. We have a mining lease which we called the Neves-Corvo mining lease which is pertinent to our old deposits that we’re currently mining and including Lombador. The second big parcel of mineral rights that we have there is an exploration lease which we call the Castro Verde lease. And at some point in time you need to convert the exploration leases to mining leases and that’s inevitably a negotiation. There is an underlying mineral code which I think has a 3% or 3.5% NSR on base metals.

Our fiscal regime for the Neves-Corvo mining license is 1% NSR or a 10% net profits interest the government can choose year. So there has been a dialogue going on back and forth between us and the government on what the fiscal regime will be when Semblana and other discoveries on Castro Verde exploration lease when they are developed. So we have not yet resolved those final terms.

Kerry Smith - Haywood Securities

I get you, okay.

Paul Conibear

Yes. And then and frankly we -- because we didn’t have a resolution last April, we stopped spending on the exploration ramp down towards Semblana until we are confident on what the fiscal terms are there.

Kerry Smith - Haywood Securities

Yes, okay. And then maybe just last question on the zinc TCEs for 2014. Do you think they would they would be based on what you noted, and do you think of kind of come in similar to what you had in 2013 or are you haven’t sort of settled anything, but just wondering what you’re thinking there?

Paul Conibear

I wouldn’t want to speculate on those at all.

Kerry Smith - Haywood Securities

Okay, that’s great. Okay, thanks Paul.

Paul Conibear

Yes, thank you Kerry.

Operator

Thank you. There are no further questions registered at this time. I’d like to turn the meeting back over to Mr. Conibear.

Paul Conibear

Okay, thank you operator. Thank you everybody for attending this morning and we look forwards to the next quarter when we speak to you again. Bye-bye.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time. And thank you for your participation.

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