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Ladies and gentlemen, thank you for standing by, and welcome to the Lundin Mining second quarter results conference call. [Operator Instructions] Please be advised today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Marie Inkster, President and CEO. Thank you. Please go ahead, madam.
Thank you, operator, and thank you, everyone, for joining Lundin Mining's Second Quarter 2020 Results Call. I would like to draw your attention to the cautionary statements on Slide 2. We will be making several forward-looking statements throughout the course of this presentation and likely in the Q&A as well. On the call to assist through the presentation and answering questions are Jinhee Magie, our Senior Vice President and Chief Financial Officer; and Peter Richardson, our Senior Vice President and Chief Operating Officer.Before we dig into the second quarter results, I'd like to highlight that we issued our 2019 sustainability report late last month, and it is now available on our website. This report is our 9th annual report as a stand-alone document, though we have been communicating our CSR, ESG and health and safety performance initiatives well prior to that. I encourage you to read the report and learn about our sustainability-related performance, our stated goals and our strategies for the future.We have been recognized by several of our research analysts and their firms for our achievements in addressing key ESG challenges and opportunities for our industry. We thank you for that support. If you have specific questions after your review of this report, we would be happy to follow up with you to provide additional information, including access to the appropriate members of our ESG team and leadership of Lundin Mining.During the second quarter, fast-growing infection rates of COVID-19 in Brazil and Chile have increased the risk of outbreaks in the communities near our Chapada and Candelaria operations. At the same time, rates of infection in the areas near our operations in Sweden, Portugal and the Upper Peninsula of Michigan in the U.S. have remained relatively stable. We're continuing to learn and adopt to new ways of operating in response to COVID-19, while remaining focused on ensuring the safety of our workforce and local communities. We are doing this within the framework of our pandemic response plan, recommendations of health authorities and local and national regulatory requirements identifying and implementing measures to protect our workforce and our communities.To help address the effects of the pandemic in our local communities, our operations have contributed approximately $3 million in direct relief efforts. I would like to thank our streaming partners at all sites. Franco-Nevada, Wheaton Precious, Sandstorm and Altius all reached out to us to offer assistance and contributed to our efforts. Lastly, I would like to again acknowledge all of the Lundin Mining employees and our contractors who continue to rise to the challenge to keep our operations running smoothly and, most importantly, safe.Before turning the call over to Jinhee and Peter to run through the summary results and performance of our operations, I wanted to highlight that we celebrated the first anniversary of the acquisition of Chapada earlier this month. It has been a very successful first year, and we look forward to delivering many more as the asset has developed to its full potential. Jinhee?
Thank you, Marie. During the second quarter, our operations in aggregate produced over 105,000 tonnes of base metals and approximately 44,000 ounces of gold. We sold nearly 100,000 tonnes of base metals and approximately 42,000 ounces of gold, generating revenue of $533 million. Overall, there is a positive pricing adjustment this quarter as the market price recovered from many of the metals we produced. The positive impact on revenue was $32 million for adjustments on prior period sales. Additional information on our provisional prices and pricing adjustment is included in our MD&A in Note 12 of our financial statements.Copper generated 71% of our revenues, up from 64% in the first quarter. Gold contributed 13%, down slightly from the 15% in Q1, while zinc, nickel and lead contributed a combined 15%.Slide 6 represents a summary of the quarter's financial results. We realized a copper price of $2.85 per pound in the quarter, well above the average market price, in part reflecting prior period adjustments of $0.21 per pound. Second quarter revenue was 44% above that of the same quarter last year. This is mainly due to increased copper and gold sales volumes with the acquisition of Chapada as well as a higher realized copper price. Attributable net earnings from operations were $0.05 per share and adjusted earnings were $0.07 per share for the quarter. Details of the adjustments, including the deferred tax expense at Chapada arising from foreign exchange translation, which has no cash impact, are broken down in our MD&A issued last night.I would also note that our cash costs and production costs include expenses related to our readiness in response to COVID-19 as many of these costs are likely to be required for some time. We have, however, excluded $3.8 million of onetime project standby and suspension costs from adjusted earnings and adjusted EBITDA as broken down in our MD&A.With our operations performing well and the increase in metal prices, we generated adjusted EBITDA of over $230 million in the quarter. Cash flow from operations was $38 million and adjusted operating cash flow before changes in noncash working capital was nearly $180 million or $0.24 per share. Working capital was negatively impacting the quarter by higher trade receivables due to timing of shipments and higher metal prices.Second quarter capital expenditures on a cash basis were $100 million, bringing the total of the first half of the year to roughly $240 million. Our Board of Directors has again declared a regular quarterly dividend of CAD 0.04 per share or CAD 0.16 per share on an annualized basis, maintaining the increase of last quarter. We remain in a strong financial position with significant liquidity and low leverage. We ended the quarter with $284 million in cash and equivalents and a net debt position of $220 million, a further $430 million of liquidity remains available under the company's revolving credit facility, excluding the $200 million accordion. Our net debt position has improved further since the end of the second quarter and is now approximately $190 million.I will now turn the call to Peter to discuss our operations.
Thanks, Jinhee. On Slide 7, Candelaria performed well in the face of increasing COVID-19-related challenges and implementation of processes and protocols to protect the workforce and local communities. Unfortunately, production was impacted by unfavorable ore characteristics and unplanned mill downtime. Pictured here is one of the 2 systems to conduct COVID-19 PCR tests delivered as part of the MXN 2 billion commitment to the Atacama Health Network to fund various plans and programs.We continue to operate with a reduced on-site workforce to minimize potential for workplace exposure. So far, we have not experienced any significant disruptions to production, concentrate shipment to supply chain or regular maintenance due to COVID-19. However, at times, we have prioritized production mining over development and have delayed our expected timing to complete the mill optimization program, CMOP, and other projects.Mill throughput increased compared to the first quarter that was again impacted by ore hardness and available operational hours in the mill. Overall, variability in ore hardness has continued as we mine through the upper benches of the South section of Phase 10 in the open pit. We are undertaking a series of mine and mill actions to address these issues. Additionally, while we work to minimize the impact of the mill optimization project, interferences and other operational downtime affected mill throughput more than planned.The mill optimization program achieved substantial completion in the first half, approximately 96% complete with the exception of the replacement of the fourth ball mill motor. We have postponed the installation of the final ball mill motor to correspond with planned downtime in January 2021 due to the limited ability to safely mobilize the necessary contractors and consultants as a result of COVID-19. All remaining equipment necessary to complete the project is on-site and available for installation.Full year production guidance for copper and gold has been reduced to reflect the first half actual results as well as the expectation of lower throughput than previously planned for the remainder of the year. Despite the less than planned production, per tonne mills operating costs in the first half of the year have been in line and Candelaria's full year cash cost guidance of $1.35 per pound of copper has been maintained.Sustaining capital expenditure guidance for the year is also unchanged at $230 million. Of this, approximately $100 million remains, with $130 million having been capitalized in the first half. 2020 exploration expenditure guidance remains at USD 15 million, including over 50,000 meters of planned drilling. Approximately $6.5 million was spent in the first half of the year with nearly 30,000 meters of underground exploration drilling completed.Continuing with Chapada on Slide 8. The operation had a good quarter, particularly in the context of continuing to adapt operating procedures and enhanced protocols to protect our workforce and communities from COVID-19 infection. So far, Chapada has committed over $375,000 in humanitarian relief, medical equipment and educational support to help face the pandemic. Their efforts include procuring COVID-19 tests, along with protective equipment, cleaning, food and personal hygiene kits to local communities. We continue to operate with a reduced on-site workforce. So we have brought back certain contractors and personnel under strict protocols to perform necessary maintenance, project work and exploration activities.Copper and gold grade and recoveries both improved significantly over those of the rain-impacted first quarter as we mined and milled according to plan. This led to a 16% increase in Q2's copper production and a 28% increase in gold production compared to the first quarter. Full year copper and gold production guidance has been maintained as we expect slightly stronger production in the second half of the year.The second quarter cash cost of $0.21 per pound was better than planned. Cash cost benefited from a favorable foreign exchange rate and from strong gold prices to which Chapada's expected production of 85,000 to 90,000 ounces are fully exposed. Full year cash cost guidance has been further improved to $0.65 per pound of copper from $0.85 given the $0.54 per pound achieved in the first half of the year and improvements to our foreign exchange and gold price assumptions for the second half.Capital expenditure guidance is maintained at $40 million for the year, with $12 million of this being -- having been capitalized in the first half. This includes all capital for the new mobile crusher, which is expected to be operational at the beginning of next year.The exploration program was temporarily reduced in mid-March in response to COVID-19 to minimize the number of employees and contractors on site. We have since been able to increase drilling activities again. We're bringing back a fourth drill rig in August and are planning to bring 2 more in September if we're able to safely mobilize.We targeted 40,000 meters of drilling for the year. This is a challenging target. With the restrictions due to COVID-19, we have been able to complete approximately 9,800 meters in the first half. We will advance this as aggressively as we can while maintaining health and safety protocols. The majority of this drilling is to continue to focus on near-mine targets with some regional drilling as well. In the photograph on this slide, you can see our Chapada geologist examining core from the current drilling campaign.We continue to believe there is significant value to be created at Chapada through expansion at the appropriate time, and our study work is advancing. As we indicated previously, the expansion strategy will be underpinned by the exploration success that we can achieve.Neves-Corvo, on Slide 9, operationally had a strong quarter. While COVID-19 infection rates in the areas of Portugal near Neves-Corvo were relatively stable during the second quarter, the team remains diligent and continues to manage, respond and adapt to the pandemic within the framework of its crisis management and pandemic response plans. Social investments efforts have focused on supporting local education by providing tools and technology to schools transitioning to virtual learning. They have also launched a community project to distribute masks produced by volunteers and bring safety awareness to residents on how to reduce the risk of spreading COVID-19. Neves-Corvo continues to operate with a reduced on-site workforce. Though we have brought back some contractors from outside the immediate region under increased testing and health protocols to help with the necessary development and maintenance.Production of copper, zinc and lead all increased over that of the first quarter. This was driven in large by record combined mill throughput with over 1 million tonnes of ore milled. In particular, the copper plants had a record for tonnes processed in May of 260,000 tonnes. Per tonne site operating costs were better than planned, benefiting from lower contractor costs and increased throughput. And the second quarter cash cost improved 22% over that of the first quarter to a $1.75 per pound of copper. Neves-Corvo is well positioned to achieve full year production and cash cost guidance.Major construction and commissioning works on the zinc expansion project continued to be temporarily suspended. However, minor works were carried out to secure the surface and underground construction sites as well as to mobilize some contractor equipment and supplies. Minor works that can be carried out without introducing additional risk to the operation have been planned for the second half of the year to help facilitate an efficient ramp-up of construction and commissioning when they occur. This includes ventilation raise work, pre-commissioning activities on the SAG mill and the surface conveyor installations. The 2020 capital expenditure guidance for ZEP has been increased by $10 million to $65 million to include this additional work. Total preproduction project expenditure remains unchanged at EUR 360 million.The project restart is planned for early 2021. If current safety requirements for social distancing and other personnel limitation remains in place in 2021, it is likely that the project would mobilize a smaller number of contractors than originally planned with an extended schedule in order to take the project forward.Moving to Zinkgruvan on Slide 10. Sweden has taken a different approach than many countries to confronting COVID-19. While rates of infection in the areas near Zinkgruvan were relatively stable during the second quarter, we remain diligent to continue to implement many of the same preventive measures and protocols that are at our other operations. Zinkgruvan is building on its previous support with a local women shelter to help combat the rise in domestic abuse during the pandemic and has invested in a buy local campaign to help stimulate local businesses.An extended campaign of processing copper ore during the second quarter resulted in increased copper production, lower zinc and lead production compared to the first quarter. Full year zinc and copper production guidance remain unchanged. The operation is positioned for a stronger second half of the year as mine sequencing calls for a return to high-grade zinc stopes in the second half and into 2021. Per tonne milled operation costs were better than planned in the quarter even before the impact of favorable foreign exchange rates. Cash cost guidance of $0.60 per pound of zinc remains unchanged.Sustaining capital expenditure guidance for the year is also unchanged at $45 million, of this approximately $28 million remains, with $17 million having been capitalized in first half. Exploration efforts continue in the quarter on existing ore bodies as well as targeting Dalby from underground. Full year exploration guidance is $6 million with planned drilling of 17,000 meters. Approximately $4.5 million was spent in the first half of the year with nearly 11,200 meters of drilling and 200 meters of exploration drifting completed.Lastly, finishing strong with Eagle on Slide 11. While rates of COVID-19 infection in the U.S. increased later in the second quarter, in the Upper Peninsula near Eagle, rates were relatively stable. The team is continuing to closely monitor the pandemic within the framework of the crisis management and pandemic response plans to ensure that our prevention controls evolve and remain effective. Particularly as the region typically experiences an influx of out-of-town visitors during the summer months.To help local economy recover from the stay-at-home orders early in the pandemic, Eagle has launched a Rockin Local campaign to encourage employees to buy goods and services from local businesses. Meagan Morrison, Eagle's Social Responsibility Adviser, is showing off one of the cards given to the employees to help kick start the program. Over USD 100,000 was invested in this program alone, which will help stimulate the local economy and promote small businesses across the region.Operationally, Eagle had a strong and safe quarter, a new record for days without a recordable injury was set. And at the end of the quarter, it was 239 consecutive days and still counting, beating the previous record of 180. Nickel and copper grades were moderately lower than planned. Though this was due to recovering more ore than originally planned on the 2 levels of Eagle East. The high-grade ore body is very irregular and cut-and-fill mining has allowed us to effectively explore and extract this additional profitable ore. As mining progresses into the higher-grade regions of the Eagle East ore body throughout the year, nickel and copper feed grades are expected to increase. Full year copper production guidance has been increased to 17,000 to 19,000 tonnes and nickel production guidance reiterated at 15,000 to 18,000 tonnes.The second quarter cash costs improved over 20% to $1.13 per pound of nickel compared to the first quarter. Full year cash cost guidance has improved to $0.85 per pound of nickel from $1 given $1.29 per pound achieved in the first half of the year in expectations for a strong second half. Having generated approximately $57 million of free cash flow in the first half of the year, Eagle is well positioned to continue to generate meaningful free cash flow for the remainder of this year and in the next several years ahead.I'll now turn the call back to Marie.
Thank you, Peter and Jinhee. On Slide 12, we have a summary of our current guidance, which Peter discussed in each of the operational sections and the detail of which is in our MD&A. As we have noted, during the second quarter, our operations performed well and did not experience significant disruptions to production, shipment of concentrate or supply chain as a result of COVID-19. However, as we are all well aware, the global effects of COVID-19 are continuing to evolve, and our guidance does not reflect potential for additional suspensions or other significant disruption to our operations due to COVID-19. The number of new cases in Brazil, Chile and the U.S. have continued to increase. Given the uncertainty of the duration and magnitude of the impact of COVID-19, our guidance is subject to a higher than normal degree of uncertainty.From our current assets, we continue to have an excellent growth production profile now benefiting from the significant investment initiatives over the last few years. We continue to guide for over 30% growth in attributable copper production by 2021 from 2019 levels from our current assets. The growth is primarily attributed to realizing the benefit of investments we made in 2018 and 2019 and are nearly complete at Candelaria in addition to the Chapada acquisition.With the temporary suspension of the Neves-Corvo zinc expansion project, we are currently reviewing the 2021 and 2022 zinc production forecast, though it will again show significant zinc production growth with the ramp-up of the Zinc Expansion Project. The addition of Chapada has increased our gold production and, more importantly, has significantly increased our attributable and fully exposed gold production to nearly 100,000 ounces this year based on our current guidance, the benefits of this seen again in this quarter. And lastly, nickel production is set to increase as the higher grades of Eagle East are mined.To conclude, our strategy is to operate, upgrade and grow a base metals portfolio that provides leading returns for our shareholders throughout the cycle. We continue to execute well on our strategy. Lundin Mining is favorably positioned financially and operationally for an uncertain economic environment and will be even better positioned as the global economy recovers generating greater demand for the metals we produce.Thank you. Operator, and I would like to open the lines for questions.
[Operator Instructions] Your first question comes from Orest Wowkodaw of Scotiabank.
I was hoping we could get more color on some of the operational issues at Candelaria. You cited ore hardness, but I think there was some disclosure also about other operational issues and unplanned maintenance. Can you give us some details on what those were? And I'm also wondering whether any of these issues, including the ore hardness is going to spill over into 2021?
Okay. Thanks, Orest, and we expected to get a lot of questions about this. Essentially, when you look at the technical report for this year, we had about 30 million tonnes of ore to be processed this year to meet the plan. So our plans for this quarter -- or this half of the year was just under half of that. In reality, we milled about 11.8 million tonnes. So in order to reach the original guidance, we would be looking at over 100,000 tonnes per day. And we know we're not going to get there. For the first half, we would have averaged somewhere around 60,000 tonnes per day. Peter has some specifics on the details of what makes up those differences. But we expect a better second half. We expect to do somewhere between 70,000 and hopefully 80,000 tonnes per day, depending on the quality of the rock and what's going through the plant. So we've been in that range in July. So we're fairly confident in the remainder of this guidance, and we don't expect anything to spill over into next year.But Peter, I'll hand it over to you for the specifics of the production and the interruption.
Yes. Okay. Can you hear me?
Yes.
So Orest, good question. So it's a combination of both ore hardness and unplanned and disruptions in operations. On the ore hardness, we're continuing to evaluate that. We're doing a lot more drilling and some more met tests for the -- on -- especially on Phase 10 of the open pit to understand and better calibrate our models going forward. So that's ongoing. We're also working with better drilling and better blasting to improve ore fragmentation, so we get better ore fragmentation to the mill. In the mill itself, we've had a number of onetime mill unplanned downs. We've had some issues with trunnion in the ball mill. We had a water leak in the pipes coming in, which has made us go down. These are things that have been resolved. They were onetime things during the quarter. We've also experienced operational issues with the pebble crushing circuit, which is when we can't crush all the pebble that's being created. So if the ore is harder, we create more pebbles. And if we can't crush all the pebbles, then we get a recirculating load to the SAG mills, which lowers throughput.So those are the things that we've been working on during the quarter. Trends are improving. And also, we've had some CMOP-related disturbances operational during the quarter, so plugging up of lines, cycle lines. And so we've learned a lot during the quarter. We've made a lot of improvements. What else we're doing in the mill? We're increasing ball mill charges to get more power, draw more power out of the ball mills. And of course, we're working with the pebble crushing circuit to improve both capacity and availability because we don't -- we can't afford to have those crushers down because we need to crush all the pebbles that are created.
Okay. And what gives you the confidence that the ore hardness issue doesn't continue beyond this year?
It's the modeling that we see the different phases of the open pit. So it's with the logical models that we follow and predict.
Okay. So Phase 10 is done?
No, we're in the higher benches of Phase 10 right now. And as we get deeper, the ore gets softer, and that's been typical -- similar areas in Phase 9. So we have the history of Phase 9 being very close in how the ore trended. So we know that it's harder in the upper benches than it will be in the lower benches. So -- no, we're definitely not finished with Phase 10. Orest, I cut you off there. I don't know if you were going to say anything else?
No, I'm good.
Your next question comes from Ioannis Masvoulas from Morgan Stanley.
Three questions from my side. The first on Chapada, you mentioned the challenges in continuing with the drilling activity this year. How should we think about the timing of a potential update on the expansion optionality. Would this drilling delay lead to a meaningful delay in the -- in your planning time line? Then secondly, when we look at the Chapada, very good performance on costs. But if we were to look at the revisions to your gold and FX assumptions, is it fair to say that about 2/3 is due to that and, on the other hand, 1/3 coming from better operational performance? And then lastly, at Candelaria, there was some noise recently on head count reduction. Can you elaborate on your actions there? And how do you see the upcoming wage talks playing out?
Sure. Okay. That's a few good questions there. I guess in terms of the drilling this year, as Peter mentioned in his discussion of the operations, our target is 40,000 meters. It is an aggressive target given the fact that we had to curtail in the first quarter. But we do have a plan. Not sure if we'll get to 40,000, but we're going to try as hard as we can while still maintaining the safety. We have been proceeding with the desktop studies in review. So that's been ongoing. So at the moment, of course, the drilling is important to that. It's difficult to say how it will affect the timing. So we have been thinking of an 18-month time frame. If we don't achieve the drilling within that time frame, then we could have a couple of months' delay, but it's very difficult to say right now. We may be able to catch up on that. So I think at this point, we're still hoping to keep to that time frame but give or take a couple of months.The second question on the revisions to the C1. Yes, definitely, we had a very good benefit from the gold and FX. And so you're correct in assuming that there would be a large portion of the benefit from that. I do note that our guidance is still under where the current pricing is. So -- in terms of the gold price, so there could be some further upside there. And the site has done an exceptional job of keeping the costs in hand and under control. So the costs on a local currency basis are also performing very well.On the head count reduction at Candelaria area, yes, we did get a little bit of press, not a lot. And of course, we are in labor negotiations this year with the union. Part of the layoff program was an early retirement. So it was an early retirement and business optimization program. So that included adjustments to eliminate some roles where there are new skills and new technical capabilities that are needed in order to meet some of the changing requirements. And a good portion of that would have been offers for early retirement to workers who are over 55 and then they would have an enhanced compensation package with pension, health, education, depending on the workers' circumstances. So that was the -- it's probably just over 100 people in total. So it wasn't a huge portion, 5% to 7% of our own direct employees, but as you know, we have a large contractor workforce as well. So that's what the early retirement and restructuring program was based on.In terms of the labor negotiations in the current year, we have 5 unions representing the workers at Candelaria and the port facility. So we are in -- we have started negotiations with them. We've reached an agreement with one of the smaller unions representing the plant workers at our PAC plant, which is on the Ojos side of the valley. And we're extending our current agreement to May 2022. So we are currently in discussion with the other 4 unions and working towards that agreement ahead of the expiry of our current agreement. So I think that covers all the questions.
Your next question comes from Jackie Przybylowski of BMO Capital Markets.
I guess I'll just start with Candelaria. And then another thing you highlighted in the MD&A was that you're moving back -- in your Phase 10 pushback, you're moving back into the area where you had the wedge failure back in 2017. And obviously, I mean, you're more aware of it and you're monitoring it more closely now. But can you just talk a little bit about if there's any risks to the operation or to the workers in terms of moving back into that area and how you're able to manage around that fault?
Sure. So Peter, I'll have a go here, and then if you want to add anything. So yes, we are in the area where we had the wedge failure. And we just wanted to highlight that we're in that area. We're very cautious, of course, given the history there. The geomechanical conditions are similar. So we have done quite a bit of extensive modeling to analyze the best ways to mine, and we are taking precautions. But we do have the typical things that you would expect for an industry best practice in terms of monitoring, we have blasting protocol, especially for that area, daily inspection, the radars that you would expect, prisms, extensometer. So all of those things are deployed. And at the current time, there's no movement in the area. So we have examined a number of scenarios, though, and are doing modeling, and it suggests that if we did have an issue, we don't have any concern for the current production profile. What we would probably anticipate is we may have -- because it's in the area near one of our switchbacks for the ramp, we would have a steeper incline to move that switchback or use a longer haul through to Phase 11.But Peter, you've been involved in detailed modeling. I don't know if I've missed anything there.
No, I think you said it. We're being very cautious in the area and monitoring continuously and modeling and have contingency plans.
That's great to hear. And if I can just ask on a different topic. On ZEP, you indicated that you're going to be restarting that early next year with -- assuming everything goes well with COVID restrictions and things like that. If that's the schedule that you're on, can you maybe just give us a bit of color in terms of like what the remobilization time line would look like and when we could actually see a completion of the project? I mean do you have that kind of detail at this point?
We do. We have a number of different plans depending on the restrictions that we have. So we are doing a little bit of work this quarter. Peter, do you want to speak to the remobilization?
Yes. So as Marie said, we've taken into account COVID-19 situation and done a prediction how long those conditions will last. So we put a plan together to anticipate that. We're not planning to bring huge, huge numbers of people back at the same time. So we're going to spread out the people to minimize any potential continued infection risks with it. But we have to monitor the situation in the area, COVID situation in the area, and then we'll adjust accordingly. But we'll bring -- we're not going to bring the huge numbers of contractors back as we previously had. But again, it's subject to change depending on how things go COVID-related. That's the answer to the question.
Your next question comes from Lawson Winder of Bank of America Securities.
Just a question for me, maybe ZEP as well. Would it be fair to say that the existing Neves-Corvo operations are benefiting from the ZEP being currently shut down?
I think ZEP will be a benefit to Neves-Corvo when it is completed, that's without a doubt. I do think that given the current COVID situation, Neves-Corvo is the site where we probably have the most challenge with social distancing, just because of the way that the operations are laid out at very tight quarters, change rooms and common areas are very tight, and they don't -- the way they're constructed does not allow for a lot of social distancing. So I think in terms of being able to implement the measures that we need to implement in order to keep the operation safe then, yes, it would be very, very fair to say that shutting down the project has helped that. But it is a good project, and it will go forward at an appropriate time when we're sure that the operation won't be at risk.
Okay. It makes a lot of sense, especially when coming from the angle that [ Neves-Corvo ] was really strong in Q2 and encouragingly, that's perhaps the reason that the throughputs were so strong because the construction at ZEP was no longer interfering with the existing operations that, would that be fair to assume?
You broke up a little bit at the beginning there, but I think you were asking about the fact that the throughputs were excellent in the last quarter and whether it was interferences that were keeping that from happening before. I think we've had a number of improvement projects there in our business excellence team, and we have a very good mill manager, [ Mauricio ], who has been working to push the throughput.Peter, I don't know if you have any comment on that? I think they're doing well.
No -- Sorry. I wouldn't know. ZEP has had no effect on that. So it's good -- a lot of good work done by [ Mauricio ] and his team to improve availability and improve capacity throughput. So it's not related to ZEP. ZEP is currently shut down. It's just a lot of good operational efforts.
Okay. That's clear. And then maybe to turn more to the question on Candelaria. Have you thought -- I mean since you've owned the operation there recently, that there is the potential that you need to add some additional crushing-type capacity in order to deal with the ore hardness? Or are you satisfied that the current capacity you have is sufficient?
We have done a lot of scenarios. We had some additional crushing in the original plan for CMOP. And I know that we're studying further. Peter, do you want to comment on that?
Yes. So we're studying that further. It's correct, Marie, as you said, that was previously and originally in CMOP. So that's something that we're revisiting again if we are to do something on the back end on the pebbles crushing, but we're also studying as part of the underground -- potential underground expansion project further crushing of the incoming ore to the mill to improve fragmentation further. So yes, studies are ongoing on both the front end and the back end of the plant.
Okay. So just the pebble crusher study is the only part that is related to the open pit. The additional expansion is just related to the fact that you might have more ore as opposed to the ore hardness, would that be fair characterization?
The front end is more to deal with the harder underground ore and then the -- exactly.
Got you. Okay. And then with the big build in working capital in the quarter, is -- would it be fair to assume from that to unwind over the following quarters? Or is there some component that might be sticky as a result of COVID disruptions?
We do expect a better movement in working capital. Jinhee, do you want to address that one?
Yes. Yes. So no, we do expect it to reverse in the latter part of the year. The negative impact on the working capital is when you have the increase in metal prices, then you have the increase in receivables, and it takes time for us to collect on that. So that's the main impact. So we should see some reversal come through in Q3 and Q4 in the latter half of the year.
Yes. And we were coming from an extremely low position for working capital at the end of last quarter. At the end of the quarter, some of the customers that we would typically have big balances from, we actually owed money on settlement. So we were coming from a very low working capital position in terms of receivables.
Okay. Got you. Okay. That's super helpful. And then maybe just, I guess, on your latest thoughts on the dividend and return of capital and the buyback, what your thoughts are with that going forward? That's all for me.
Yes. So we did announce our dividend last night. So we're happy to be continuing with our dividend program and quite confident in that. We did stop on buying -- purchases on the NCIB during the second quarter -- our last purchases were in the first quarter. So it does remain in place. We have stopped the purchases to focus on the preservation of cash during the uncertainty, but it's something where we will consider that. As our cash balance grows and as we manage the balance sheet, we'll continue to evaluate that as part of the regular capital allocation discussions.
Your final question comes from Daniel Major of UBS.
One follow-up on Candelaria and maybe just to clarify your detailed explanations earlier. Is it possible to put, I guess, a percentage influence on the weaker H1 production and the downgraded guidance this year between ore hardness and operational issues?
Yes. I think, Peter, you have that breakdown, don't you?
I do. So if we look at CMOP and pebble-related compared to unplanned downs, about 50% of that less downtime in mechanical, less downtime is due to a combination of CMOP issues and pebble issues. And then compared to the ore hardness, it's a -- I don't have the exact numbers in the head, but it's at around 50% as well there, I would say.
Perfect. Yes. That's very clear. And just to clarify on that. As we look into next year, the ore hardness from the geological perspective is a key driver rather than significant operational change. You don't have the downtime you anticipated and the ore hardness improves based on the geological model, is that's the right way of thinking about it?
That's correct.
Yes, actually, that's correct. Yes.
Yes. Great. And then my next question, particularly at Candelaria around Chapada, what is your level of on-site staff relative to the normalized level? And what is the rate of stripping that's been achieved in the first half versus, I guess, the mine plan or the rates that you need to achieve? And does that mean you're going to be stripping harder next year?
We are down a bit on contractors, but we do have a fairly healthy staff complement still there, and we do have a fairly good number of contractors. Peter, do you have the specifics of the stripping? It hasn't been an issue in terms of the stripping -- more of the contractors that we've suspended from site due to COVID have been on small projects and in the project area. So I don't believe there's any impact -- that material impact just from a stripping standpoint. Peter, anything further to add?
We've pushed a little bit of stripping on Phase 11, we pushed forward, and that will be caught up next year and the year after. But otherwise, it's like you said, the -- and that was a conscious decision from our part. Otherwise, it's -- we've been moving people around from projects to help operations.
Okay. And just final follow-up on that. Interesting comments on the fact that you've got a relatively limited reduction in on-site staff because, particularly at Candelaria. I mean if you look at Antofagasta or BHP, Anglos, they've probably been running 20%, 30% down. Why do you think you -- you've been able to keep a higher proportion of your regular kind of on-site staff?
Well, I can't [ answer theirs ], but go ahead, Peter.
No, I was going to say, we have reduced the on-site staff. So we've reduced more or less -- almost 900 contractors temporarily suspended and 800 contractors have been terminated and then we also have a large number of our own employees working from home. So we have reduced the amount of people on site. We have.
Okay. Can you just remind me what sort of percentage reduction is that approximately?
20%, 30%. A little more, I would say.
Okay. So it's in line. Okay. Great.
Ladies and gentlemen, that was our final question for today. I will now return the call to our presenters.
Great. Thank you, everybody, very much, and we look forward to hearing next quarter results for the third quarter during our next call.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.