Nevsun Resources' (NSU) CEO Peter Kukielski on Q4 2017 Results - Earnings Call Transcript

Nevsun Resources Ltd. (NYSEMKT:NSU-OLD) Q4 2017 Earnings Conference Call March 2, 2018 11:00 AM ET

Executives

Heather Taylor - IR Manager

Peter G. Kukielski - CEO

Ryan MacWilliam - CFO

Analysts

Dalton Baretto - Canaccord Genuity

Craig Hutchison - TD Newcrest

Pierre Vaillancourt - Haywood Securities

Orest Wowkodaw - Scotia Capital

Alex Terentiew - BMO Capital Markets

Jacques Wortman - Eight Capital

Operator

Good morning, ladies and gentlemen, and welcome to the Nevsun Resources 2017 Fourth Quarter Full year Results Conference Call and Webcast. I now would like to turn the call over to Heather Taylor, Manager, Investor Relations. Please go ahead.

Heather Taylor

Thank you, Sylvia. Good morning everyone and welcome to the Nevsun Resources 2017 fourth quarter and full year results conference call and Webcast. A news release was issued last night announcing the Company's financial results for the fourth quarter and full year for 2017. It is available on our Web-site at nevsun.com along with our MD&A and financial statements, which are also available on SEDAR.

Before we get started, please be advised that the information discussed today is current as of December 31, 2017 unless otherwise indicated, and that comments made on today's call may contain forward-looking information regarding production, past and future financial results, as well as the potential arising from exploration programs and the strategic direction of the Company.

Forward-looking statements are by their nature uncertain and frequently, but not always, are identified by words such as expects, anticipates, believes, and similar expressions or statements that events, conditions, or results will, could or should occur, or be achieved. Actual achievements or future events or conditions may differ materially from what is projected due to a variety of risks, uncertainties, and other factors.

We encourage all listeners to thoroughly read yesterday's news release as well as the quarterly financial statements and the entire MD&A. All the financial numbers referred to today are in U.S. dollars, unless otherwise stated.

Our presenters today are Peter Kukielski, Nevsun's President and Chief Executive Officer, and Ryan MacWilliam, our Chief Financial Officer. Following the conclusion of formal remarks by Peter and Ryan, we will host a question-and-answer session.

And now, I'd like to turn the call over to Peter. Peter?

Peter G. Kukielski

Thank you, Heather, and thanks to everyone for joining us on today's call. 2017 can best be described as a year of transition for Nevsun. Much has been accomplished to reset our Company for delivery in 2018 and beyond as we continue down earth to becoming a multi-mine mid-sized based metals company.

Our mantra in 2018 is delivery and the work we did in 2017 has helped us set a foundation for delivery. I am especially pleased to affirm that our engagement with the Government of Serbia has paid off. Together we work intensely and productively in order to gain a deeper understanding of permitting requirements and you would have seen that we announced yesterday a major project milestone in the receipt of our Exploration Decline Permit.

The granting of this permit is the first of its kind under the recently modernized Serbian mining code and has positioned Nevsun as one of the most important investors in the Serbian mining sector. I am proud to have pioneered this effort with the Serbian site.

At Bisha, the rethinking of our approach to mining investment has positioned us to generate more reliable and predictable cash flows over the remaining life of mine. These cash flows will help maintain an already strong balance sheet and will be critical in supporting the ongoing development of our extraordinary Timok Project in Serbia.

We have made significant progress in optimizing operations at Bisha. The capital investment and management time spent on Bisha gives us confidence that we will see improved results going forward. In coming weeks, we will have an updated Reserve and Resource Statement at Bisha which will only include materials from the Bisha Main pit and the satellite Harena pit.

Additionally, we continue to explore with our partners in Eritrea ways in which we might be able to lower our overall cost profile at Bisha, which could support mine life extension. We are also conducting further work at satellite deposits which could potentially be added to reserves in the future.

Another key part of our transition in 2017 was the reshaping of our senior management team. I had the privilege of being appointed to this role in May of last year. Since then, I've streamlined the structure of our executive team with the elimination of the Chief Operating Officer role.

With that change, two seasoned executives have joined us and report directly to me, with one overseeing the Timok Project and the other responsible for operations at Bisha. I will talk more about them and their backgrounds a little later in the call but want to reiterate that this flatter structure is more efficient and allows for greater focus at our two main assets. And of course we also added a new CFO, who is here with me today.

Now, let me briefly discuss our operational performance for the year. I'll keep my remarks very brief as we already released our 2017 operating results and Ryan will provide some explanations of the operational impact on our financial performance.

For [2018] [ph], we were pleased to achieve the higher end of our zinc guidance with just over 210 million pounds of zinc produced for the year. Our copper production of 17.5 million pounds was below the lower end of our guidance and mildly disappointing. We believe the challenges encountered at Bisha in 2017 are behind us and are encouraged by operational performance to date in the first quarter of 2018. This gives us confidence in reiterating the full year guidance we issued at the end of January of 210 million to 240 million pounds of zinc and 20 million to 30 million pounds of copper in 2018.

Now, I'd like to turn the call over to Ryan MacWilliam for a review of fourth quarter and full year financial performance. Ryan?

Ryan MacWilliam

Thank you, Peter. I will begin by discussing our fourth quarter performance. At Bisha, we undertook a series of activities that will contribute to stronger future operating performance, but which resulted in weaker financial results with net income of $2.2 million in the quarter.

Specifically, we completed the squaring up of the pit to allow for increased access to primary ore in 2018. The focus on waste movement led to a higher strip ratio of 13.8 in the fourth quarter, compared to 7.8 for the full year. It also led to a reduced supply of primary ore feed, necessitating additional processing trials of boundary ore stockpiles. These stockpiles, now referred to as zinc-only stockpiles, we treated successfully for zinc recoveries, but resulted in higher reagent costs due to increased lime usage to control pH levels.

These events contributed to abnormally low copper recoveries and higher costs for the fourth quarter, with C1 cash cost per pound of zinc on a by-product basis of $1.13 for the quarter compared to $0.88 for the full year. We forecast lower C1 cost per pound of zinc of between $0.60 and $0.80 in 2018 due to reduced stripping requirements and increased availability of primary ore feed. It has been very pleasing to see the continued improvement in recovery so far in 2018, as we process exclusively primary ore and trial new reagents.

Although the processing of the zinc-only stockpiles resulted in higher costs, it did highlight our continued ability to successfully and economically recover zinc from these stockpiles in the second half of the year. As a result, we have reversed the previous impairment taken on the remaining high and medium-grade portions of the stockpiles. This resulted in an impairment reversal of $13.1 million related to stockpiles as at December 31. This combined with the impairment reversal of $6.5 million on material that was successfully processed during the second part of the year to result in a total reversal of $19.6 million. The remaining impairment of $32.1 million taken on low-grade and high zinc-only stockpiles was not reversed as it is not economic to process these stockpiles at current zinc prices.

2017 was the first full year of Timok being included in the Company's financials. This resulted in a significant increase in the exploration and evaluation expenditures, as we completed an extensive drilling program. Our mid-tier mining peer-set take one of three accounting approaches to these exploration and evaluation expenditures. They either entirely capitalize them, entirely expense them, will expense them until a point when there is an increased level of confidence in the viability of the mineral resource.

We have decided to change our accounting policy to move us from the first group to the third group, as we will now expense all exploration and evaluation expenditures until we declare an initial reserve. The group with which the Company's new policy aligns is generally comprised of larger mining companies, which is consistent with Nevsun's growth following the Timok acquisition.

This change in policy results in $50.8 million of operating expense in 2017 that would have been capitalized under the previous policy, with the majority of the spend incurred at the Timok Project. The impact of this policy change in 2018 financials will be markedly less than in 2017, as Timok expenditures will again be capitalized following the initial reserve declaration.

This new policy does not change our conviction that we are fortunate to be developing a project on a world-class ore body with outstanding economics. Rather it reflects the opportunity that with the development of Timok, Nevsun will have a set of larger, more established mining peers, and therefore we want to adjust our accounting policies accordingly.

I now want to review the 2017 full year financial performance. Revenues were $289 million, a 25% increase from 2016. As you can see on the slide, the ramp up of the zinc plant and strong zinc prices resulted in zinc share of revenue increasing from 10% in 2016 to 78% of revenue in 2017. Due to this increased share of revenues, we will now disclose zinc C1 cost with copper on a by-product basis going forward.

Based on current zinc and copper prices, and 2018 guidance of increased production of between 210 million and 240 million pounds of zinc and 20 million and 30 million pounds of copper, we expect zinc to represent around 75% of total revenue.

Nevsun is perhaps the only mid-tier mining company to offer predominant medium-term exposure to the current deficit in the zinc market, but at the same time offer predominant longer-term exposure to the expected deficits in the copper markets post 2020 with the ramp up of the Timok project.

In earnings from mining operations, decreases in copper volumes in 2017 were more than offset by increases in zinc volumes and prices. However, 2017 earnings finished lower than 2016 due to the absence of DSO sales, the previously mentioned $49 million impairment, and higher operating expenses. The increase in operating expenses reflect both the cost of running the zinc processing circuit and higher strip ratios, but also reflect that 2017 was a transitional year in terms of both mining and processing activities.

2017 saw an increased $29 million of capital expenditures at Bisha, with $8 million on the tailings facility expansion project and $18 million of sustaining capital. The sustaining capital predominantly consisted of heavy mining equipment purchases, which have now improved the mine's ability to move material. 2018 cash flows will benefit from a 48% decrease in capital expenditures at Bisha, with guidance of $15 million for the year.

At Timok, $16 million of the required $20 million spend on the Lower Zone was completed in 2017, with only $1 million remaining to be spent in 2018. This reduced spending on the Lower Zone will partly offset the planned increase in Upper Zone spending of $50 million to $60 million in 2018. Of this, $15 million will be spent on exploration decline, following the recent receipt of the decline permit.

In exploration, our spend at Bisha will decrease from $9 million in 2017 to $7 million in 2018. At the same time, we will spend $5 million on a new Timok Brownfield exploration program. This will allow us to build on the promising exploration results announced last month with the discovery of a new high-grade copper-gold mineralization 500 meters east of the Timok Upper Zone. This spend is further supported by the knowledge that at the Bor deposit, only 5 kilometers to the north of Timok, approximately 144 million tons of massive sulphide mineralization was mined from 27 separate ore bodies.

So, the reduction in capital spend at Bisha, the ramp-down in Timok Lower Zone spending, and strong expected operating cash flows from Bisha, will maintain Nevsun's strong balance sheet, which will be used to fund the Timok Project.

Additionally, through the last quarter we've held discussions with potential project finance lenders, particularly European commercial banks and development finance institutions. These lenders have expressed a strong interest in financing the Timok Project, with the indication that they would loan between 50% and 60% of the project's capital. The high front-end loaded operating margins of the project and the resulting 1.5 year payback period are features that are particularly attractive to these lenders. Discussions will be further advanced following the release of the Timok PFS in the first quarter of 2018.

So, 2017 was a tough year for Nevsun's financials, but we are confident that we have laid the foundations at both Bisha and Timok for strong operating and financing cash flows in the coming years. With that, I will hand back to Peter.

Peter G. Kukielski

Thanks Ryan. As noted earlier, let me provide a short summary of the changes made to our senior management team. Following that, I'll conclude with a quick overview of Timok and then we'll be happy to answer your questions.

Last month we announced some key additions to our team. Jerzy Orzechowski was appointed to the role of Vice President & Project Director, Timok Project. Jerzy played a key role in restructuring Kinross Gold's Tasiast project to optimize investment value and lower the initial CapEx. He also received the EPCM Project Director role for a $6 billion smelter and power generation complex in the UAE where he delivered the project under budget and ahead of schedule. His experience will be an immense asset for Nevsun as we continue to advance Timok's development.

Adam Wright joined the Company yesterday as Head of Operations. Adam joins us from Nautilus Minerals where he was responsible for Papua New Guinea operation. Previously he held a variety of senior positions, including operating roles at Equinox Minerals and at Placer Dome.

As I noted earlier, both Jerzy and Adam will report directly to me and I look forward to their contribution to Nevsun. With these changes and with Ryan as CFO, I believe we have the right team in place at the right time, as Nevsun is squarely focused on developing Timok and becoming a multi-mine mid-sized mining company.

Now let me conclude with a quick summary of some of our key objectives for Timok in 2018. At Timok, our focus for 2018 [indiscernible] and delivering against key value drivers. With the decline permit in hand, we expect to break ground in the spring. Land acquisition remains key and today the vast majority of privately held land parcels required for the Timok project are under offer, and more than 40% of the privately held land is being secured. Notably, all of the land needed to begin work on the decline has been secured.

Longer term, we are continuing with step-up exploration for Upper Zone type deposits in the vicinity of the Timok project. Given the discovery history in the Bor camp, we believe the promising geology holds very exciting potential to discover new resources.

At the Lower Zone, we are continuing to work with our partners at Freeport and will have more information in due course. Drill results to date at the Lower Zone have been extremely encouraging and we believe this property holds great promise for Nevsun and its shareholders [indiscernible]. We expect to declare a maiden resource in the Lower Zone during 2018.

And finally, later this month we will provide a summary of the pre-feasibility study for Timok. The PFS [indiscernible] milestone for Timok and will bring more clarity for us and for the market on the path forward and timeline for this outstanding project.

Let me conclude by extending sincere thank you to our entire team at Nevsun, to our Serbian team, to our Bisha team, to our ENAMCO partners, and to the government of Serbia. Transition can be difficult and our team handled change with professionalism and showed great dedication. That is what's critical in the repositioning we have undertaken in recent months, and I look forward to working with them as we advance our key strategic objectives.

And now, we would be happy to answer your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question will be from Dalton Baretto at Canaccord. Please go ahead.

Dalton Baretto

I'd like to start with Bisha please. Congrats on what looks like a step change in recoveries in Q1. Peter, can you add some color in terms of what's driving that change going into Q1?

Peter G. Kukielski

Certainly, Dalton. It's a number of factors, the most important of which is that we are doing the work that we undertook in the fourth quarter to, as Ryan says, squared away the pit for properly sequenced and planned operations. We now have access 100% of the time to primary material. So the concentrator [indiscernible] did much more efficiently without the stop/start associating with campaigns. And with the introduction on full-time basis of a primary ore, we are just seeing better response of the concentrator. So, recoveries continue to improve. That is really the primary driver.

Dalton Baretto

Okay, that's great color. So, do you see further improvements or what are you targeting now in terms of zinc and copper?

Peter G. Kukielski

We are targeting much improved performance. I think you saw the numbers that we released in our materials yesterday, whereby our copper recovery is approaching 60% and our zinc recovery is over 80%. And I think that with those numbers in hand, we are pretty confident that we can make our guidance.

Ryan MacWilliam

Dalton, it's Ryan here. I'll just add to that. Given it's still early in the year and that we have two months of performance behind us, we are cautious to see how we progress. As Peter said, we've had two months of primary ore, and with that two months we have trialled some new reagents, which have shown promising results, but it's too early to bank the benefits of those two activities as we think about the rest of the year.

Dalton Baretto

Okay, understood. And maybe if I can just jump over to Timok, congrats on getting the exploration decline permit. Can you guys talk a little bit about what drove the delay, if you will, and what you guys have learnt from that and what the implications are for future permitting?

Peter G. Kukielski

Definitely, Dalton, and thanks for those kind words. I mean the mining law is a new law in Serbia. And so, if you look at the mining law simplistically, everything is easy. But there is a rulebook that underpins or underlies the mining law. And we were perhaps a little bit optimistic when it came to our understanding of exactly what the requirements of the mining – of the rulebooks are, but [indiscernible] basically with the government of Serbia, so both of us can get a much better understanding of the level of resident support that will be required for permits going forward. And I think that this is a remarkable success in the sense that we now have handle on what's required. Together with the government of Serbia we worked hard at this, we've got the understanding of what's required going forward, and I think that's moving the process up.

Dalton Baretto

Okay. So then given what you just said, are you still comfortable with your guidance on the exploitation permit like you were?

Peter G. Kukielski

The exploitation permit – exploitation permit [indiscernible] once we have completed the decline, so I think you are talking about the PFS that we will release at the end of this quarter, followed by the feasibility study, and then we'd be looking to obtain the construction permit, which I presume is the exploitation permit that you referred to, once we have completed the decline. Is that correct?

Dalton Baretto

I'm actually just trying to pull up your presentation on the site that is here, but there was a key permit that was due in Q4 of 2018, and that's the one I'm referring to, an exploitation field permit.

Peter G. Kukielski

Oh, okay. So I think that we will certainly make progress towards that, but I think that the key to this project really lies in two things, land acquisition and completion of all of the permits. So, we'll start construction of the decline in the next few months, and once we attack the decline, then that will need a primary focus really for the next two years. During that time, we'd have plenty of time to go after all of the other permits that we require. We have a much better understanding of the inputs that are required.

I think it's fair to say that the beginning of the decline has slipped by at least a couple of quarters. Remember that we were going to start in the fourth quarter of last year. It's now the second quarter of this year. And I believe that you will see some of that slippage flow into the project. So, I think the milestones that we are talking about in the fourth quarter of this year will certainly slip a little bit, no doubt about that, but we have a much better understanding of what we need to do going forward.

Dalton Baretto

Okay, I understand. And just maybe one last one from me, I'm looking forward to seeing the PFS later this month, but can I ask, are you still considering a lower throughput scenario or is that off the table now?

Peter G. Kukielski

We are considering a lower throughput scenario, Dalton. PFS will still be based on the throughput scenario in the PEA, but we believe that there may be some opportunities associated with a lower throughput scenario, which we would carry into the definitive feasibility study.

Dalton Baretto

Okay, perfect. Thanks guys. I'll jump back in queue.

Operator

Your next question will be from Craig Hutchison of TD Securities. Please go ahead.

Craig Hutchison

You mentioned the funding for Timok, you've had some expressions of interest for 50% to 60% of the capital from some lenders. What are you guys thinking about for the remainder, to fund the remainder of the project?

Ryan MacWilliam

It's Ryan here. So three components, the first is the cash in our balance sheet where we finished with over $120 million at the end of Q4. The second is cash flows from Bisha. As we talked through on the call, the reduced capital requirements there and stronger [indiscernible] will be helpful in financing Timok. And really the third category that we will advance through this year is looking at other options, including streaming, including discussions with strategic partners who have potential interest in the asset, to close that gap. But I'd say that gap is a minority of the total project CapEx.

Craig Hutchison

Would you consider up to say a 25% sale of the asset or do you want to try to keep 100%?

Ryan MacWilliam

When I talk about strategic partners, those can be at either the asset level or an investment at the top co. level.

Craig Hutchison

Okay. And maybe just circling back on Bisha and the recovery issues, do you have a guidance for grade this year that you can provide us for zinc or copper?

Ryan MacWilliam

We do not provide grades but we expect, given we're processing primary ore through this year, we have been processing high grades to date, which is part of the reason that drives stronger recoveries.

Craig Hutchison

So could we still rely on last year's technical report in terms of profile for grades for the next three or four years?

Ryan MacWilliam

[Operator Instructions] we will update that through the quarter, but materially we expect to do predominantly the same ore, and that the R&R we release through March will be based on the Bisha and Harena pits, which was what the same that was included last year.

Craig Hutchison

Okay. Thanks guys.

Operator

Next question will be from Pierre Vaillancourt at Haywood. Please go ahead.

Pierre Vaillancourt

Peter, I just want a bit of a clarification on what you were saying to Dalton. So, when you talk about slippage, I know the construction permit was projected for Q2 2020, leading to production by the end of 2021. So, we should move that back by a couple of quarters. Is that correct?

Peter G. Kukielski

Look, I mean I think that what you really should rely on is the cutout that we'll provide when we release the PFS at the end of the month. But I do think that it's fair to say that slippage in project is not always recoverable. So, there is some pressure on that schedule.

Pierre Vaillancourt

Okay. And also, you mentioned how 40% of the land is you have acquired around the project. So, where is that going to be let's say at the end of the year, how are you envisioning that process to move forward?

Peter G. Kukielski

I would hope that by the end of the year we have approximately 90% of the land that's required, certainly 90% of the privately held land. Obtaining the government land is a little bit, probably will take a little bit more time. But the government is solidly behind the project, so we don't anticipate any issue with that. But roughly 90%, we are pretty confident of that.

Pierre Vaillancourt

Okay. And circling back to the delay on the decline permit, I mean could you be a little more specific? I mean, what was the hang-up there? I can appreciate that the process is, there are a lot of intricate pieces there, but what was more specifically the hang-up around that?

Peter G. Kukielski

Sure. You'll remember that when you were on the site visit, you had a presentation on the new mining law. And the most profound thing about the new mining law is it says that the minister has I think it was 60 days or a certain period during which to approve a permit. What it didn't say is that there were certain rules that underlie the application for that permit.

And so, during the time leading up to the issue of this permit, we have developed a much, much better understanding what the bureaucrats – bureaucrats is a wrong word – what the professionals in the institutes need from us in order to provide their endorsement of the permit or the application. And the minister relies on the endorsement of the institute.

So, we had not understood that well until now exactly what was required to satisfy the requirements of the technical guys. We now have a much better understanding of that. So, I think as we are going forward, a lot of this type of back-and-forth will disappear.

Ryan MacWilliam

I think what we have seen through this quarter has been very positive for two reasons. One, because we've received the permit, but also the exercise to receive that permit has meant Jerzy spending the predominant amount of his [time] [ph]. He's both have a team dedicated to the permitting process, which are now in place, and all of us have had to spend time [indiscernible] in relation to the Serbian government. So, we feel positive that we've received the permit, but I think more importantly, positive that we've set ourselves up for success for the balance of the permits that we'll receive. So we'd rather go through this exercise over the last six months than a year from now as we are closer to serious funding requirements.

Pierre Vaillancourt

All right, thanks. Last question also, so there was reference to an initial resource for the Lower Zone, what do you think the timing is on that? I mean is Freeport actually committed to doing that?

Peter G. Kukielski

So, we plan to do it in any case. I think it's important that we do so. But of course we will do so in consultation with Freeport. I would hope that we would get that done certainly by the third quarter of this year or in the third quarter of this year.

Pierre Vaillancourt

All right. Thanks Peter.

Operator

We have a follow-up from Dalton Baretto. Please go ahead.

Dalton Baretto

Just on the Lower Zone at Timok, I know it's early days, but do you have an understanding of what your funding commitments will be going forward, any color on discussions with Freeport?

Ryan MacWilliam

Sure, Dalton. It's Ryan here. So, the Lower Zone budget is proposed by the operator of the Lower Zone, which has become Freeport. This year there is minimal funding requirements beyond the $1 million which we have announced. Really the next, we expect the next substantial funding of the Lower Zone to only occur post the decline being constructed. Really we need to get down to depths from there to drill it out. So we don't expect any near-term material financial requirements from the Lower Zone.

Peter G. Kukielski

Dalton, it's Peter. Think about it. I mean if you want to drill from the top of, at least from the surface, or do you want to wait until we get 400 meters underground and drill from that level down [indiscernible].

Dalton Baretto

That makes sense to me. And so, then the inferred resource in Q3, that will just be based on the drilling done to date, correct?

Peter G. Kukielski

That is correct, yes.

Dalton Baretto

Perfect. Thank you.

Operator

Next question is from Orest Wowkodaw of Scotia Bank. Please go ahead.

Orest Wowkodaw

Just a couple of follow-ups, given the guys before me have covered a lot here. With respect to again this delay on the decline permit, are there implications with respect to timelines now for obtaining all of the other permits that you're going to need? And beyond just sort of backing up call it three or six months, are there any bigger implications here that you now realize, given your better understanding of the permitting structure, that some of the permitting targets with respect to the critical path here could materially change with respect to the timeline?

Peter G. Kukielski

Look, I think it's premature for me to try taking guess exactly what the implications of the permitting process are. We'll discuss those in much greater detail in the PFS. However, I believe that as we advance through this project, we'll get better and better and better at getting these permit issues [indiscernible] and energy is solidly behind this project and has confirmed and reaffirmed that several times recently.

I think with the momentum that we deliver, or at least that we gain with the government of Serbia over the coming months, will ensure that any effects that we may have seen over the last six months on this single permit application are addressed going forward. So, the focus is going to be getting our stakeholders squarely behind this project, and I think that you will see that we can deliver.

Orest Wowkodaw

Okay. And just as a follow up again in terms of the financing for Timok, is the goal to effectively have all the financing in place from external sources by the end of this year or is that something that is envisioned over a longer period?

Ryan MacWilliam

It's Ryan here. The capital we have committed when the project is ready for construction to begin, so really the project finance facility we look at the CPs for that, the release of that capital, you need to finish your feasibility study, you need to have received your permits, and you need to be ready to begin construction. So, under the PEA schedule, that occurs midway through next year.

Orest Wowkodaw

Okay. But should we expect at least that those terms are in place by the end of this year or is sort of the whole financing more likely going to come together next year?

Ryan MacWilliam

I'd say, we have completed a substantial amount of the work this year, and then provide an update on that, but actually this capital itself will be released in 2019 or when we need it.

Orest Wowkodaw

Okay, great. Thanks very much.

Operator

Next question is from Alex Terentiew from BMO Capital Markets. Please go ahead.

Alex Terentiew

Just a follow-up question on Bisha, with the higher recoveries that you're seeing now, if you can maintain these or even get them a little bit better, how does that change your or does it change your view on the remaining three or four-year mine life for Bisha? And if it doesn't, is there something else that you're looking for before you advance to invest in extending the mine life there?

Peter G. Kukielski

Look, Alex, I think that certainly if we do maintain this level of improvement, it would have implications on the remaining mine life at Bisha, without a shadow of doubt. And I should say [indiscernible] continue to work with our partners at ENAMCO to look for means whereby we can extend the mine life. I know you haven't asked the question, but our relationship with those guys is rock-solid, and we have beans who are working together to attack every avenue to try to extend mine life, and recoveries are only one of those.

Alex Terentiew

Okay, great. And I mean you mentioned at the beginning, there were some comments on exploration, what else you guys were looking at, but can you just refresh me of what you said there with a bunch of points?

Peter G. Kukielski

Our focus on the exploration this year will stay in the roughly $15 million in exploration. Exploration will be divided between Timok, between our assets in the Serbian and the…

Alex Terentiew

Sorry, just Bisha in particular, where your focus is on there, so open-pit, underground, upside, things like that?

Peter G. Kukielski

So at Bisha we're going to spend approximately $7 million on the exploration. The exploration is going to focus largely on the targets that were identified in our VTEM exercise earlier on. And we'll be focused [indiscernible] particularly on near-surface type opportunities as well as opportunities close to Bisha itself.

Alex Terentiew

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

Operator

Next question is from Jacques Wortman of Eight Capital. Please go ahead.

Jacques Wortman

Just one quick question for me, can you please provide a sense of what proportion of the $50 million to $60 million you're going to be spending at Timok in 2018 as part of the initial CapEx estimate, I guess that was $629 million in the PEA, because the decline, as I understand it, is actually critical in opening up the underground and developing and installing the infrastructure? So, I just want to get a sense of how much of that is actually initial CapEx.

Ryan MacWilliam

Sure. The vast majority of that is initial CapEx. The two large numbers that are included in that $50 million to $60 million are the $15 million which we will spend on advancing the decline through this year, and the second large number is the $25 million we will spend on, as Peter said, acquiring 90% of the private land. The balance of it, including $12 million for the feasibility study and the final part of our [indiscernible] program, will also advance that project.

Jacques Wortman

Okay. Thanks guys. Perfect.

Operator

Thank you. And at this time we have no further questions. I would like to turn the call back over to Peter.

Peter G. Kukielski

Before I conclude, what I'd like [indiscernible] a question that you asked, Dalton, earlier on with respect to alternatives that we are considering in the [indiscernible] and I mentioned that we are looking at a lower throughput option. But I should clarify or explain that it's not a lower throughput option so much as a ramp-up option. So, through that option we would start our production at a lower rate and over time ramp up [indiscernible] originally anticipated 3.3 million tons a year. We just have some CapEx spend advantages in the earlier years.

So, with that comment then, I'd like to thank everybody for joining today's call. We look forward to updating you in late March when we provide a summary update for the PFS at Timok. So, thank you very much for your time today.

Operator

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Have yourselves a great weekend.