Trevali Mining Corp (OTCQX:TREVF) Q3 2019 Earnings Conference Call November 6, 2019 1:00 PM ET
Brendan Creaney - VP, IR
Ricus Grimbeek - President & CEO
Gerbrand Van Heerden - CFO
Yan Bourassa - VP, Mineral Resource Management
Conference Call Participants
Jackie Przybylowski - BMO Capital Markets
Ralph Profiti - Eight Capital
Stefan Ioannou - Cormark Securities
Orest Wowkodaw - Scotiabank
Dalton Baretto - Canaccord Genuity Corp.
Craig Hutchison - TD Securities
Good day, ladies and gentlemen, and welcome to the Trevali Mining Corporation Third Quarter 2019 Financial and Earnings Conference Call. [Operator Instructions]. I would like to remind everyone that this conference call is being recorded. I would now like to turn the call over to Brendan Creaney, Trevali's Vice President of Investor Relations. You may begin your conference.
Thank you, Simon. Good day, ladies and gentlemen, and welcome to Trevali Mining Corporation Third Quarter 2019 Financial and Earnings Conference Call. I would like to remind everyone that this conference call is being recorded. Trevali's third quarter results were issued yesterday, November 5, and are available both on our website at www.trevali.com, and online at SEDAR.
Additionally, a corresponding news release was issued with our financial results to review the company's financial performance, as well as production and sales from our core operating mines.
As a reminder, a replay webcast will be available 1 hour after today's call. In conjunction with this conference call, there is an accompanying PDF presentation available on the Events section of Trevali's website under the Investors tab. The link to our live webcast is also on Trevali's website under events. Main presenter today is Ricus Grimbeek, Trevali's President and CEO, who'll be accompanied by Gerbrand Van Heerden, Trevali's Chief Financial Officer; and Yan Bourassa, Trevali's Vice President of Mineral Resource Management.
In today's presentation, there may be some forward-looking statements made, and I draw your attention to the customary disclosure in our Corporate Materials on Slide 3.
Now I would like to turn the call over to Ricus.
Thank you, Brendon. And good day, ladies and gentlemen. I'm very pleased to be able to talk to you about our third quarter highlights. We've had a lot of great things to tell you and this is despite the low zinc price environment in the quarter. Starting with safety, we have made great strides and have seen a 71% reduction in the total recordable injury frequency compared to the same period in 2018. While a good statistic, we have a lot more work to do to make sure that we can guarantee the health and safety of all our people.
I'm very excited to announce that we are reconfirming the 2019 guidance we published at the beginning of this year, except for exploration that I will discuss a bit later. For those, I'd also like to highlight the production may exceed the high-end of our guided range of 41 million pounds and our all-in sustaining cost is trending to the middle of the range despite high annual industry benchmark treatment charges announced earlier this year.
Specifically, with respect to the third quarter, we broke another production record with 106.8 million payable pounds of zinc. This marks the second consecutive quarter of record production and it was done with all 4 operations performing well with an average all-in sustaining cost of $0.96 per pounds of zinc. We've launched our T90 program. This is a transformative improvement program that is targeting $50 million in annual sustainable efficiencies, which will reduce our all-in sustaining cost in $0.90 per pound by the beginning of 2022. And this will form the foundation for us to grow the business in the future.
The RP 2.0 study at Rosh Pinah, which is a large contributor to the T90 program, is on track, and we have a number of details on the progress that I'm excited to share with you further in this presentation. This increased the annual exploration budget from $8.4 million to $11.7 million due to promising results to date at all our operations. And later, Yan will speak in to the details of this expanded program. Financially, we also had a strong quarter with sales of 111 million pounds of zinc and reducing our inventory levels, which contributed to our adjusted EBITDA of $22.5 million for the quarter. That brings our operating cash flow before working capital to $8.8 million for the quarter and $43.9 million for the year.
Our net income was negative $16 million and also $0.02 per share. Moving to the next slide, I'll just give you a short update on where we sit relative to guidance. As you can see from the zinc production standpoint, we need to produce about 88 million pounds of zinc to exceed the top-end of our guidance. We're confident that this can be accomplished. From a cost perspective, despite the upward [indiscernible] cost pressures resulting from the annual benchmark zinc treatment charges, being settled at approximately $245 per tonne back in the spring, up from the $147 a tonne in 2018. We are still forecasting a final cash cost for the year within the guided range.
We expect our all-in sustaining cost to finish up strong and in the middle of the range as a result of the savings and to our capital projects and programs. This is testament to some of the early work already around the cost reduction program.
I'll go to the next slide, and just to give you a short update on some of the mine operations.
As I mentioned, all operations performed well in the third quarter. Caribou significantly reduced its all-in sustaining cost this quarter as a result of increasing the tonnes through the mill. The mill itself had some record days exceeding the nameplate capacity of the 3,000 tonnes per day with 1 day coming in at 3,352 dry metric tonnes. We are excited by this because we believe in the longer-term, we will be able to fill the mill by adopting the new mining methods that we will be testing in the fourth quarter. And in future, we will be able to supply -- supplement this feed by holding ore from Restigouche, that's about 35 kilometers away.
At Santander, both mining and mill throughput rates have increased. The mill is performing well as a result of improved maintenance planning and the mill of feed rate is up 8% due to better control on mine solution. At Rosh Pinah, there were 3 steps being actively mined during the quarter, and there are 9 steps ready to blast, consisting about 236,000 tonnes of ore.
This operation is now constrained by the mill and current capacity, and it's why the RP 2.0 expansion project is very important to its future. In the quarter, a reconciliation on concentrate inventory was completed, which negatively impacted the operations by about 1,200 dry metric tonnes of zinc concentrates. This adjustment was applied against metallurgical recovery and it's why you see the dip in recovery of about 3% compared to the previous quarter. This expected to be a one-time event as part of reconciliation controls have been put in place.
I will also remind the audience that revenue is lumpy at Rosh Pinah due to the bio annual sales of lead concentrate, and we did not have a lead concentrate supplement in the quarter. There is one scheduled to ship in the fourth quarter. Lastly, the filtration and grinding upgrade project remains on budget, and is on track for completion by the end of the year.
At Perkoa, we hit a record quarterly production for the life of the asset with 48.3 million pounds of zinc produced, and we were also able to reduce mining dilution to 9% and increase metallurgical recovery by about 2% by controlling the iron content, which we will go into more detail further on in this presentation.
I'll now hand over to Gerbrand to talk to you about the financial position of the company.
Gerbrand Van Heerden
Thank you, Ricus. And also good day to all. Before getting into the quarterly numbers, I would like to point out that we have made changed to our accounting presentation around how we treat adjustments to provisionally [indiscernible] revenue. The -- what we owe now [ph] the settlement mark-to-market adjustments have been pulled out of the revenue line and been -- and given its own accounting line. It is our view that this gives a better reflection on the performance of the operations and reduces the volatility on revenue and adjusted EBITDA.
As contracts can settle upto 6 months after the revenues associated with the contract is initially booked whereas the operating expenses are strictly related to the quarter. It also does not impact the calculation of net income. In short, it increases transparency and reduces volatility. Let's just stick to the quarterly financials. We had a strong quarter to match our strong operating results. This despite a lower average zinc prices relative to last quarter. Adjusted EBITDA was $22.5 million with sales of 111 million pounds of zinc, approximately 4 million pounds above our production volume as we were able to clear the buildup of concentrate inventory that we had at Rosh Pinah in the last quarter. This was also an increase of 19% over the previous quarter sales quantities.
Our cash cost and all-in sustaining came in at $0.84 and $0.96, respectively. An improvement over the previous quarter and in line with our longer-term T90 plan. Regional adjustments were booked at a negative $11 million, driven by deep lining zinc cost over the quarter. $4 million of the $11 million was related to contracts that settled and the remaining $7 million is related to contracts that are still open, and we're mark-to-market at the 3 months of $1.05 per pound and this is also very close to realized price for the quarter.
Our financial position is strong with liquidity of $232 million, made up of $36 million in cash and $196 million available on our revolving credit facility. We paid down our debt this quarter by $13.5 million, and purchased $400,000 in shares under our share buyback program being the total shares purchased under the program to 20.2 million at a cost of $5.4 million at the end of Q3. As of the release date of our MD&A, our share count was 805.4 million shares as [indiscernible] canceled an additional 5.7 million shares between the end of the quarter and end of market trading on November 5.
At this point, I would like to hand back to Ricus.
Thank you, Gerbrand. Now as I alluded earlier, I'm very pleased to announce our T90 program. It's a transformative plan that encapsulates all the work we're doing to make the business and operate efficiently and to ensure that Trevali is profitable through the commodity cycle. It will also form the basis for us to grow the business in the future. The program consists of specific improvement opportunities unique to its operation, and it benefits from standardization across the portfolio, the deployment of digital solutions to empower better decision making and the RP 2.0 expansion project, which will increase production and reduce unit cost.
We are targeting $50 million in recurring annual efficiencies on a pretax basis, which will lead us to an all-in sustaining cost of $0.90 per pound of zinc by beginning of 2022. It's already identified $30 million of the $50 million target and these initiatives are in various stages of deployment and value realization. T90 gives us the platform to scale and it is the basis of a company's transformation and additional improvements beyond the plan are undoubtedly in front of us, as it opens the door to reduce the cut off grades and extend mine lives at all our operations. Some aspects of the T90 will require investments, material investments identified today included in the RP 2.0 expansion projects and elements of the digitization program.
On the next slide, we are highlighting one of the T90 initiatives that is well advanced. At Perkoa, the iron content in the ore has been increasing as we mine deeper underground. Iron impacts us negatively in 3 ways. First way it impacts is that reduced our zinc metallurgical recovery rates. The second is that we incur higher freight charges due to the additional volume and weighting of the iron. And lastly, it could also result in penalties for order specification concentrates.
The solution that we've came up with was to repurpose a floatation bank as an iron floatation stage with only the addition of a frother in the new iron floatation stage, the excess iron is floated off before floating the zinc. By reducing iron levels in zinc concentrate, we recover more zinc, reduce our freight charges and reduce any additional cost that could incur from penalties. And this will allow us to get to an annual saving of about $4.8 million. This is an example of T90 program in action.
Moving onto the next slide. I'm excited to show you some of what the future of Trevali has in store. We've provided an indicative timeline by quarter after various studies and projects that will add meaningful value to the existing Trevali operations.
At Caribou, we are preparing the trial and alternative sublevel caving mining method as well as the extraction of the historic sill pillars, which are currently excluded from reserves. We will be coming back next quarter with an update on this.
At Rosh Pinah, the filtration and grinding upgrade project is on budget and scheduled and will be operational by year-end. I will pass over RP 2.0 here because we got -- we get to that in a bit more detail on the next slide.
At Santander, drilling is concentrated, we've 4 rigs on site to drill out the Santander Pipe. This activity is part of our internal scoping study, which is scheduled to be completed in the fourth quarter of 2020. The study is looking to incorporate the Santander Pipe ore into the Santander life of mine plan, complementing the Magistral ore deposit, which we currently mine.
Now turning to RP 2.0, our expansion project at Rosh Pinah, we're working hard on the feasibility study and firming up our trade-off studies to come to the preferred single option around the mining methods, material handlings and configuration, size of the processing plant and various underground and surface infrastructure elements. Currently we are estimating capital cost between $60 million to $80 million, to increase viable production by 60% to 80% and reduce all-in sustaining cost to below $0.90 per pound for the life of mine. We've partnered with several engineering and consulting firms do support engineering and procurement work related to the project. With respect to investment decision points, we expect to make an initial long lead procurement decision by the end of this quarter 2020, and the full project funding decision by the end of next year. Commissioning of the project is scheduled to occur in the third quarter of 2021.
At this point, I will hand over to Yan to walk us through the exploration side of the business.
Thank you, Ricus. Last quarter, we discussed the increase in exploration activities at all operations with exploration and resource conversion drilling program expanding at all operation. This has led to an increase in our exploration budget from $8.4 million to $11.7 million with $4.3 million to be spent in the fourth quarter.
We mentioned at the end of the second quarter that we were adding drill rigs at all 4 operations, and we now have a total of 12 drill rigs active on exploration and resource definition programs across our 4 assets. The large portion of the budget increase is going towards resource conversion at all 4 operations, but more specifically, at Santander to convert and increase resources along the Magistral fold and the Santander Pipe deposit. We began the drilling program at Santander Pipe in August with 2 drill rigs and now have 4 drill rigs active from surface and looking to add a fifth rig this month. As Ricus has referenced, the drilling of the Santander Pipe is a major input into the internal scoping study estimated to completion by the end of the fourth quarter of 2020. Efforts were also underway at Caribou during third quarter with resource conversion drilling at depth along the Northern limb, targeting inferred mineral resources to be converted to indicated mineral resources.
At Rosh Pinah, the resource conversion program is also ongoing along with the drilling exploration program, targeting the under-explored Northern extension of the deposit. Electromagnetic surveys continued in the third quarter along the Northern and Eastern extension of the Rosh Pinah fold and will continue in the fourth quarter. At Perkoa, the resource conversion drilling program is underway on the Hanging wall lens at depth and exploration drilling is targeting the recently discovered T3 horizon. Surface drilling at Perkoa was halted in the third reason due to the rainy season but electromagnetic surveys continue along the mine horizon and will continue in the fourth quarter.
Moving on to the next slide. The T3 horizon discovery was made at Perkoa earlier this year and represents a third major VMS horizon at the mine and is located in hanging wall of the main Perkoa zone. Assay results for whole PX13 and PX20 were received in the third quarter and confirm the wide nature of the VMS system. The T3 horizon is located 200 meters in hanging wall of the main Perkoa VMS zone, a second drill rig mobilized in the third quarter to focus solely on the T3 drilling while we complete the infill drilling program on the hanging wall lens. One more hole was completed on the T3 target, hole PUX21, which intersected the T3 horizon and the second VMS horizon. All exploration holes to date have intersected wide disseminated stratiform VMS intercept with geophysical and geochemical vectors indicating that these intercepts would represent the edge of a larger system.
We're very pleased with how the exploration program are progressing at Perkoa, and enthusiastic about the T3 discovery made by the Perkoa exploration team.
With that, I will pass it back to Ricus.
Thank you very much, Yan. So to wrap it up. We've had a great third quarter with respect to safety, production and cost. And we expect to finish strong in the fourth quarter with -- which will ensure that we meet our guidance metrics.
We have a transformative plan in place in the form of T90 that aims at reducing our consolidated all-in sustaining cost down to $0.90 per pound by the beginning of 2022 and ensures that our business is resilient and robust to the commodity price cycle.
We're investing more in exploration and results conversion across the operations to extend the mine lives. We have an organic growth pipeline of opportunities that we are advancing with some meaningful investment decisions to be made in the next few quarters moving forward, the major one Rosh Pinah 2.0. We -- and we had a very strong balance sheet with access to $232 million of liquidity. Well, that's a lot from our side. And I will hand back to the operator for questions.
[Operator Instructions]. Your first question comes from the line of Jackie Przybylowski with BMO Capital markets.
So maybe I'll just ask a question on the RP 2.0 study. It sounds like you guys are doing a lot more work on options and you're assessing all the different alternatives. Can you maybe talk a little bit -- I know this study has been on the books for a few years now. Have you been using the work that has been done in the past? Or have you, kind of, started over from scratch? Or can you maybe talk a little bit how the process for RP expansion has gone over the last couple of years?
Jackie, I know the project has been on the go for a long, long time and -- but I'm very excited that we're getting to the backend of getting closer to execution. We're absolutely using the [indiscernible] of the work that was done in the past. There has been some really, really high-quality work done on the design for the processing side of the business. The current focus for the study is more on the mining side and making sure that we've got the right trade-offs between trucking, conveyers, ventilation systems. So that's where the most of the activity currently is set. And so, we'll be making long leads and decision items early in the new year. But I'm very excited by the project. So it's -- in my view definitely something that we want to be looking at.
That's great. It sounds like it's coming along nicely. Okay. Can I ask on the T90 program that you unveiled last night? I know some of these programs are very difficult to quantify and to report on especially when there's multiple components like cost-cutting and improvement on revenue at the same time. Can you give us any ideas, may be, Gerbrand can give us some ideas that how are you going to be reporting on this program going forward? And how will we be able to monitor your progress on that?
Yes. Maybe I'll take the first go, and then I'll hand over to Gerbrand to add something. I think it's 100% right. Some of these projects can be a bit of smoke and mirrors. And that's a last thing that we want to do. And that's actually why we've linked it to our all-in sustaining cost because ultimately, the program works will get to below the $0.90 per pound. So that is the ultimate measure. The other point is that you -- really this presentations showed you that we've picked 1 project, and we've felt in that in a bit more detail to open $8 million that we've been able to generate at Perkoa with the iron floatation circuit. And I think that's what you can expect for us in near future. We'll take on a regular basis a number of these projects, and we'll talk through them, but ultimately, for me, the scoreboard will tell you that and that's the all-in sustaining cost.
Gerbrand Van Heerden
Jackie, I guess Ricus has covered that quite well. The only thing I would like to add is more closer to the nuts and bolt. We -- with the expertise coming through our technical experts, we've implemented a system whereby we centralize -- on a centralize basis tracking all our benefits, so identified projects. Those benefits are rated through a couple of different systems in terms of what's a reasonable expectation, timelines and allocations of resources.
So from that perspective, we've got a very close angle on the pipeline of our projects already identified and what's to come. And that was leaned back to baseline reviews that we've performed across all 4 of our assets, and it's still ongoing over the last couple of months.
Your next question comes from the line of Ralph Profiti with Eight Capital.
Ricus, I'd like a little bit more on the path forward to extension of the mine life at Perkoa. It was mentioned in the MD&A and some in your comments. I'm wondering, has enough been done with the switch to HFO and pre-filtration of the iron to look at some of the conversion of mineral indicated and inferred? Or are there other factors in addition to the T90 that need to be done before we can start thinking about that?
I think, we point to the fact that our T90 program will definitely give us an opportunity to think about things like cut-off grade. And that's as you know will definitely have a potential to improve mine lives and extend our future. I think you also saw the expansion in our drilling program. It's really important that we, for example, at Santander drill out the pipe ore body that we know exactly what's there, so we can see how we bring that into the resource and reserve statements. So yes we -- I'll be absolutely honest our intent is to find a way to extend the mine lives because that is part of creating a great company.
Okay. Ricus, on T90, the way it was, sort of, presented implies a more sort of a centralized focus to how you're going to run this company, right? I mean, is that part of the strategy, I mean, would it be a -- if that's a fair way to characterize part of the T90 strategy? And what do you see as some of the benefits of more of a centralized management structure?
Yes. I think, I -- whether it's centralized, decentralized, not really the question, it's more -- you'll see and I pointed in the presentation to the fact that a lot of the solutions are very operational specific. So the iron floatation at the Perkoa is a great example. But some of the lessons, can then from that, we can take back to other operations. Say, iron could be an issue at Santander. Then in future, we know how to float iron before we float the zinc. Some of the other benefits. The procurements, running a more and standardized procurement system across the business is giving us the opportunity to leverage our scale.
And things like implementing, for example, the automated loading system -- the remote loading system at Rosh Pinah is another example of a project that we're looking at. And again, once we've mastered that and we understand how to implement that, that could be rolled out to Caribou or some of the other operations as well. So it's not necessarily like a centralized system run from Vancouver, but it's a connected system. And I think, and Gerbrand also pointed to this earlier that Eric and his team has done a great job to help us implement a reporting and recording system but also an approach where the projects are run on an agile basis. So we've got teams that solve these problems on a short interval control basis. So we don't spend months and months anticipating about a project. We actually go through understand what can be done and then execute if it makes sense.
So it's building the muscle, it's getting the data, and may be that is centralizing, the data is, that it's more visible to everyone in the business. So yes, I think it's definitely a centralized corporate-driven thing. This is an ore company program.
Your next question comes from the line of Stefan Ioannou with Cormark.
Not to belabor the T90, but just curious, of the $30 million savings you, sort of, identified to date, would it be fair to say the bulk of that is coming from 1 or 2 operations? Or is it sort of evenly spread across all 4 mines?
Stefan, I'm really excited to say that it's actually across the board. And some of these operations got like upto 10, 20 projects identified. Others have got 5, 6. But [indiscernible], it's across-the-board. It's not just 1 or 2.
Okay, okay. Great. And then great to see the exploration upside over at Perkoa right now with the T3 horizon. Just wondering when you might expect to actually get the assays for that hole 21 and I guess, hole 22 when it's done, and assays are back on. Should we anticipate a press release on that? Or it would be something that you just report with your quarterly results?
Gerbrand Van Heerden
Not as correct. We're starting to get a, sort of, a steady stream of results back from the lab now that the program has been ongoing for a little bit. And we're planning on putting out an exploration release later in the quarter.
Okay. Great. And just want to -- that hole 22, will you extend it beyond the T3 horizon to try and hit that additional second VMS horizon as well? Or you're, kind of, stopping and just pass the T3 right now?
Gerbrand Van Heerden
Well, that's correct. We're going to keep drilling until we get out of the alteration halo, that's the around both to T3 and that new horizon. So the holes will be going deeper.
Your next question comes from the line of Orest Wowkodaw with Scotiabank.
Couple of questions. Can you just remind me -- in terms of your CapEx budget for this year, I seem to recall a $74 million number, but your year-to-date spend seems like you're tracking, kind of, well below that. Is that number changed? Or should we expect it to be, kind of, catched up in spending in Q4?
I think we've pointed to the fact that we are guiding our all-in sustaining cost to the midrange. And part of that is what we've done recently as implemented our capital management framework. So where we track -- we know every single capital management budget that's on the books now. We make decisions on when to implement that. And -- so yes, I wouldn't expect a big catch up towards the back end of the year. I think we are diligently looking at every single project now to make sure it makes sense.
Okay. And as we look ahead to 2020. I realized you haven't put out a guidance yet for next year, but should we -- I've been surprised how strong the great profile has remained at Perkoa, almost 15% there in the third quarter. Do you think that you can maintain, kind of, plus-14% grade there next year? Or likely to see a, sort of, significant deterioration starting next year?
Well, I think, it's -- we've got the experts here. So maybe I'll hand it over to Yan to answer.
No, the 15% in this quarter, this was a result of a few stopes that are a bit higher grade than what we have remaining in the life of mines. So we can expect the grade to go down a little bit but still remain high at around 12%, 13%.
Okay. 12% or 13%. Okay. And then at Rosh, it was, kind of, the opposite, where we saw the grade disintegrate, actually really decline. I think 7.2%. Is there -- was there something driving that? Is that temporary? Or are you planning to mine at, kind of, a lower zinc grade in the 7% to 8% range moving forward?
Gerbrand Van Heerden
Our orders haven't yet -- still according to our plan for this year, but the second -- second half of the year will be a little bit lower grades than the previous 6 months. And we're still planning to continue on that basis for the rest of the year.
Okay. And is this year is grade indicative of what we're going to expect next year?
Yes. No, I think that's, kind of, in line.
Your next question comes from the line of Dalton Baretto with Canaccord.
Congrats on what looks like a significant change in mindset of the company. It's really good to see. Most of my questions have been answered. But if I can ask you one, Ricus. In terms of this T90 program, how much of the low-hanging fruit you think you've already captured? And how difficult is it going to be to get the incremental $20 million?
Thanks for the question, Dalton. And yes, it is a total shift in the organization. But I must be honest, this company has got some great people and it's quite easy to see the mood shift and that people are getting really excited about what can be done. So thank you for picking that up. And in terms of low-hanging fruit, you guys know there is always lots in the beginning. But my view is that the analysis we've done, the deep dive on one of the operations on technical sides. The way that people are engaging in the process of T90. So T90 is not just a top down, we look at something and tell people what to do. It's actually every employee starting getting engaged in the program. If you look at the branding of it, it's something that we want people to rally around. So my view is we wouldn't put such thing out there, if we don't think we can do it. So I'm very confident that we'll be able to get the other $20 million.
Do you think you can go significantly further than $50 million?
Let's stick to the $50 million for now. Dalton, I think, if we deliver that, let's then get back to you and see what we can do.
Your next question comes from the line of Craig Hutchison with TD bank.
Just a question on T90 for me as well. What, kind of, assumptions are you using for treatment charges, kind of, going forward? Are you sort of basing it off of this year's benchmark prices?
Craig, yes, it's a good question. As you know, treatments are just a -- it's a bit of a moving target at the moment. It's been quite shocking how much it went up this year, 70% in 1 year. But what we've put into our current plan is today the $245, $250 return numbers, but we're both into the T90 program.
And just in terms of your outlook for next year base on your discussions you're having now, I mean, what do you guys sort of thinking the market's going to show shape up to next year just given the current market dynamics?
Yes. If I had a crystal ball, it would be wonderful. But I just got back to what the current spot rates are about $290 a tonne. So that could suggest some upward pressure on the treatment charges. So, yes, but who knows what that could make there. And I think when we come back with our guidance in early in the new year what we'll do is make it very clear what we're building into our budget in terms of treatment charges. So if you have a sense of where there's going to land.
Your next question comes from the line of José [indiscernible].
I have a question about the T90 CENTS program. Is it specifically about the 60, 90 -- about the $60 million or $80 million of initial capital you need for the Rosh Pinah 2.0 exploration? How you're going to finance that operation on the next year? I don't know if equity or with the cash of the company?
I think I'll just hand over the financing question over to Gerbrand.
Gerbrand Van Heerden
Great question. We've got a couple of different option that we're looking at the moment. Obviously, as much as possible out of free cash flows. On top of that we mentioned that we've got headroom on our facility of about $200 million. So we've got a couple of options that we can look at
Okay. I have another question, it's about the projects you have like -- what about the -- what is the status of Halfmile or Stratmat or other projects different from Restigouche may be?
That is a really good question. And at the moment, we're working on the expanded Caribou plan. And that will definitely include longer-term Halfmile-Stratmat and those operations. So at the moment, we're focusing on the sill pillars. We're focusing on new mining methods, we're focusing on the exploration to the north of the mine. And we're looking at ways to get Restigouche, that's only 35 kilometers away, back up and running and getting that -- the ore in front of them all. So we have the more flexibility and control that mill. So that's the current plan, but we're definitely including the other ore sources into the thinking.
[Operator Instructions]. This concludes today's conference call. You may now disconnect.