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Good morning. My name is Amy, and I'll be your conference operator today. At this time, I would like to welcome, everyone, to the Lundin Mining Fourth Quarter and 2018 Full Year Results Conference Call. Thank you. Marie Inkster, President and CEO, you may begin your conference.
Thank you, operator, and thank you, everyone, for joining Lundin Mining's Fourth Quarter and 2018 Year-End Results Call. I would like to draw your attention to the cautionary statement on Slide 2, as we will be making forward-looking comments throughout the course of this presentation and most likely in the Q&A as well. On the call to assist me with 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. Overall, we had a very good 2018. Our company-wide safety performance was better than target for a sixth consecutive year and remains in the top quartile of the industry. There's always a drive for improvement and we work towards our goal of 0 harm. We achieved our latest production in cash costs guidance for all metals at all operations, and we generated $476 million of operating cash flow in a pricing environment, particularly for copper, which, we believe sustains below the long-term incentive price. We made strong progress on advancing our low-risk high-return initiatives at Candelaria. These remain on budget and on schedule to be completed by the end of this year. Of note, we also successfully commissioned the Los Diques tailings facility ahead of schedule and well under the original capital forecast. Excellent development rates were achieved advancing Eagle East, and we're well positioned to see first ore to mill from the ore body in the fourth quarter of this year. After a slower-than-planned start to Zinc Expansion Project at Neves-Corvo is progressing well on surface and underground with targeted startup in the first quarter of next year. We remain focused on value creation through disciplined capital allocation including investment in our existing assets and potential external acquisition initiative. In the fourth quarter, we eliminated $35 million per annum in borrowing costs with the early redemption of our remaining $445 million of high-yield notes. We also announced a normal-course issuer bid on the TSX. In short, we're very well positioned to deliver our improved production profile and increase free cash flow over the coming years. With that, I will turn the call over to Jinhee, to highlight this year's financial results.
Thanks, Marie. Looking at the summary of our results. Our operations in aggregate produced over 400,000 tonnes of base metals in 2018, including over 103,000 tonnes in the fourth quarter. We sold just over 363,000 tonnes of payable base metals for the year and generated total revenue of $1.73 billion. We remained predominantly leveraged to copper. Copper generated 64% of our revenues in 2018, which is down from 67% in 2017, mainly on a reduced contribution from Candelaria to overall revenues. Zinc contributed 17% and nickel 9%, both 2% greater than last year. Slide 6 presents a summary of the full year financial results, and I will also touch on the fourth quarter results. The details of both are in our financial statements in MD&A issued last night. 2018 revenue was 70% lower than 2017 and gross profit 47% lower, mainly attributable to lower metal prices and lower sales volumes. Attributable net earnings from our continuing operations were $0.27 per share for the year and $0.04 per share for the fourth quarter. Fourth quarter net earnings include unrealized foreign exchange losses and early redemptions fee for repurchasing our notes and other onetime items for total of $24.3 million or $0.03 per share. We generated $476 million in cash flow for operations in 2018 and operating cash flow before noncash working capital adjustments of $487 million or $0.66 per share. In the fourth quarter, we generated $44 million in cash flow from operations and operating cash flow before noncash working capital adjustments of $115 million or $0.16 per share. Fourth quarter capital expenditures on a cash basis were $234 million, bringing the total for 2018 to $752 million, in line with our most recent guidance in the significant investing year. Our board of directors approved our regular CAD 0.03 per share quarterly dividend for an annual dividend, up CAD $0.12 per share. Lastly, after early redemption of the remaining high-yield notes and paying our regular dividend, we ended 2018 with over $815 million in cash and cash equivalents, roughly $805 million net cash considering $10 million of long-term leases and no debt. I will now turn the call back to Marie, to discuss our operations and projects.
Thank you, Jinhee. Looking first to Candelaria. The operation had a good year. It was our safest operation. Both the mines and mills delivered according to plan, and significant progress was made on advancing our growth projects. Importantly, the mine moved over 72 million tonnes of waste from the open pit, including wastes from the Phase 10 pushback in line with our plan. Until mid-year, which is when we expect to be consistently in the Phase 10 pushback ore, we would expect that the long-term stockpile ore will comprise the majority of the mill feed, as it did in 2018. Ramp up of the Candelarian North sector underground mine continues well, exceeding our original expectations and achieving a current production rate of approximately 10,200 tonnes per day. Internalization of loading and hauling was completed with the full fleet in operation at the end of the year. In November, we announced an improved life-of-mine plan and released the corresponding technical report. With the reinvestment in the mine fleet, the mill optimization and development of the south sector underground mine, Candelaria is positioned to deliver over 30% production growth by 2021 with improving cash costs. Medium-term annual production is forecast to average over 180,000 tonnes per annum over the next 10 years. Slide 8 highlights the progress we have made on the Phase 10 Pushback. This photograph was taken early last week. For those analysts who joined us on our September site visit, you'll see noticeable progress even since that time. You can also see on the lower benches, the localized slide from late 2017. Above that, directly in the middle of the photo, you can see a shovel and several trucks mining top-down as a part of the far-side of the Phase 10 pushback. The new open-pit fleet equipment delivery is well underway. This background photograph is of 1 of the 2 new hydraulic shovels that are on-site and operational. Approximately 60% of the equipment has been received and placed in service. Much of the remaining equipment is to be delivered in 2019 with some pieces arriving in early 2020. $125 million was spent in 2018, and the 2019 CapEx guidance for the mine fleet reinvestment is $75 million. The Mill Optimization Project is progressing on track for completion by the end of 2019 with approximately 40% of construction work completed to date. The Mill Optimization Project is effectively comprised of several smaller improvement initiatives and the physical construction of these are being undertaken during regular maintenance downtime, so it does not impact the production. The 2019 CapEx guidance is unchanged at $50 million. Similarly, development at the Candelaria South sector continues to progress well and has advanced further than planned. With development advancing greater than the planned project, completion timeline of late 2019 is being reviewed. Onto Neves-Corvo. Operationally, it was an excellent year for Neves-Corvo, achieving the most recent zinc production guidance and exceeding copper, both of which were increased during the year. Improved mine productivity and mill throughput contributed to excellent operational performance at both the zinc plant and copper plant, set annual throughput record. The Zinc Expansion Project advanced well during the quarter. Overall, progress completion was 42% at year-end. The total project capital cost estimate is approximately EUR 320 million or $385 million, of which EUR 305 million is preproduction capital. Through the end of 2018, approximately $130 million have been capitalized on the project and 2019's capital guidance remains unchanged at $210 million. Peter's just returned from Neves-Corvo last week, so I'll turn the call over to him to walk through a little bit of the zinc expansion progress in more detail.
Thanks, Marie. A few photographs to highlight some of the progress we have made to date of ZEP. Underground development continues to progress on track. Concrete foundation work has been completed in the crusher chamber. And in the photograph to the left, taken last week, you can see the top of the crusher chamber with the overhead crane is being assembled. Installation work is underway on the material handling conveyer system. The middle photo is a few weeks old showing the progress of assembling the #3 transfer point station. And the photo on the right from last week show an assembly of the turnover station for conveyor belt #3. Ventilation shafts are under construction for both fresh and spent air. Due to shaft upgrade activities are being aligned with annual production and maintenance plans at Neves-Corvo. Surface construction progressed well in the fourth quarter including pouring of the SAG mill foundation, flotation cell foundations and flotation structural steel erection. In this photo, taken earlier last week, you can see additional progress with the SAG mill now on its foundation. The structural steel of the mill building is up and cladding and roofing is being installed. One can also see the installation of the flotation cells on their foundations in the background. On Slide 13, the photo on the left is a side view of this new zinc plant building we saw on the previous slide. It, again, shows the SAG mill on its foundation and flotation cells being installed. The photograph on the right shows installation of the new flotation cells in the previously vacant area of the existing zinc plant building. Not shown here, installation work is progressing on the piece taken out by the tailings pond, while the new lead thickener facility is nearing construction completion. Commission planning of the new led thickener is underway and is expected to be operational later this quarter. In summary, the underground development and surface facilities are both scheduled for completion and commissioning in the first quarter of 2020. Now back to Marie, to go through our remaining operations and projects.
Thank you, Peter. Eagle performed well in 2018. The mine achieved full year copper and exceeded full year nickel guidance on strong execution in the mine and the mill. Production was lower year-over-year as planned owing to mine sequencing and ahead of the higher grade Eagle East ore coming in online later in the year. The Eagle East project continues to make excellent progress and continues to advance ahead of the original schedule and under budget. First ore is expected to be trucked to the mill in the fourth quarter of 2019. 2019's CapEx guidance is unchanged at $30 million to complete the project. We continue with our aggressive 2019 exploration programs at Eagle, as outlined in our November update of late last year. Exploration guidance expenditure is $23 million for this year and 40,000 meters of drilling is planned near mine and on regional targets. Lastly, at Zinkgruvan. Fourth quarter zinc production was the best quarter of the year onto improved zinc ore head grades following focused efforts and planning and execution to improve dilution and ore loss experienced early in the year. Our operational focus at Zinkgruvan will remain on planning and execution to improve the dilution and ore loss. On the exploration front, we also have an active year planned for 2019 with 78,000 meters of drilling planned from surface and underground on several targets. Dalby remains our highest exploration priority and will be the focus of the 2019 program, as we aim to expand and upgrade the mineral resource estimate. On Slide 16, exploration and capital expenditures guidance for 2019 remain unchanged from our operational outlook update in November. At Candelaria, all our low-risk initiatives to deliver the production profile are on budget and on schedule. We forecast 2019 capital expenditures of $375 million and exploration of $14 million at Candelaria. At Neves-Corvo, capital costs are expected to total $275 million next year, $210 million of which is the expansionary capital expenditure on the Zinc Expansion Project. 2019 capital expenditures at Eagle are expected to total $45 million, of which $30 million is the remaining preproduction capital to complete Eagle East. And Zinkgruvan's sustaining capital guidance is unchanged at $50 million. 2018 and 2019 capital expenditures are to be the high watermark and reduce significantly in coming years following the completion of the Candelaria initiative, the zinc expansion and Eagle East. As we look ahead, the investments we are making now have set us up for multiple years of production growth and decreasing cash costs. We are guiding over 20% growth and attributable copper production from our current assets from 2018 to 2021, primarily on the improved Candelaria life-of-mine plan and our low-risk, high-return investment there. Further looking at our recent technical reports, copper production is forecast to increase beyond that of the 2021. A 55% increase in total zinc production is forecast over the same period, as the zinc expansion at Neves-Corvo was commissioned and fully ramped up, doubling zinc production from that asset. And lastly, while nickel production is guided to decline modestly this year, production levels are to increase starting in the fourth quarter of this year when the higher grades of Eagle East are mined. While the market may be aware of this increasing production, lowering cash cost and reducing capital expenditure profile, we do not believe it is fully reflected in our share price. Lastly, I will speak to capital allocation before opening the line for questions. Our objective is to create value, investing in low-risk, high-return opportunities in our own assets. We do not take for granted our great teams and assets and we aim to get the best results from them that we can. We have a vision to grow. We continue to actively pursue new growth opportunities. I want to reiterate that this will be within the same criteria, rigor and discipline we have demonstrated in the past to best allocate our shareholders capital and create long-term value. Late December of last year, we announced that we had approval for a normal-course issuer bid on the TSX. We chose to structure this as a discretionary program in order to maintain flexibility in terms of execution, a stop and start or add or reduce the share total. The consideration of this plan, however, is that we are unable to be in the market during blackout period, such as ahead of the release of financial results or when officers or directors are expected to be in the market. This compares to an automatic plan, which allows repurchases to occur at all times, though, only allows the suspension, termination or amendment of the plan outside of the blackout periods. While we continue to pursue external growth opportunities and complete the growth investments in our operations over the course of this year, we will continue to prudently manage our balance sheet, while evaluating and considering other options for returns of capital to shareholders beyond our regular dividend and this discretionary normal-course issuer bid. That concludes my presentation. And I would like to open the lines for questions, operator. Thank you.
[Operator Instructions] Your first question comes from the line of Orest Wowkodaw with Scotiabank.
Marie, I just wanted to get a little bit more color on the potential buyback. To understand your comments correctly that even though the NCIB was approved in December, you've effectively bid in blackout this entire time or was there a window to buy back shares?
You're correct in that. We were restricted most of the time that we were -- since the approval of the buyback. Of course, with the year-end results, we are in a blackout and unable to purchase during the period between the end of the quarter and the next set of financial results. So we were in a blackout. We're also advised by TSX that, if our senior officers are going to be in the market then we are unable to be buying. So it's a soft blackout there, where we all know when officers are in the market, because they'll notify us and get preclearance to trade. So we did have a number of officers having stock options expiring early this year and so had to be in the market in December. So we have been unable to be in the market for the last couple of months.
So with the plan being now that you've reported your results that -- and you've mentioned earlier that you believe your shares are undervalued that we would expect Lundin to become more active on its NCIB, moving forward?
Can't say at the moment, Orest. I mean, we're looking at a number of other things, and we'll have to decide where to allocate the capital. We'll look at the stock price against the other opportunities that we're assessing right now and make that decision as we go along.
Okay. And then just finally then, should we think about this more of execution on M&A is likely to come before you've really made any concrete decisions against the NCIB? Or do you see there being room for both?
Well, I think there is room for both. We wanted to leave ourselves some flexibility here in terms of what we're doing. We want to keep the balance sheet flexible. We want to grow. So those are our priorities. Take the internal brownfield expansion projects that we have, we can fund from our cash flow from operations. And we're going to be generating very good cash flow after 2019, because our pushbacks will be done and our -- the most of the expansion project capital will be behind us. So we're going to have a much reduced CapEx profile and be producing pretty good cash flow. So there's a lot of opportunity to look at, dividends and other ways to reallocate capital and give back to shareholders while we pursue growth. So there are options open to us. But we do prioritize growth, and we are active in the market. Now when I took over last October, when we met with investors and, I think, during the call at the end of Q3, we gave ourselves about a year to be able to execute to deploy our capital on growth. And so you'll see us, if we get towards the end of the year and there are no clear line of sight where we're going to deploy that and we see that we have a lot of cash flow coming, because our CapEx has scaled back quite a bit, then we'll be quite active in looking at other forms of giving back to shareholders.
Your next question comes from the line of Greg Barnes with TD Securities.
Marie, just to be clear on the NCIB. I thought the board had approved that you could buy back shares at or below a certain price, and your share price has been above that since then. Do you actually haven't been able to buy back stock?
Well, we have a price, Greg, but I'm not going to tell it to the market, because I don't think that benefits the long-term shareholders. So and anything...
No, I understand that but...
Yes. We -- I can call a board meeting and ask for a different price at any time, if it make sense. But whether or not it's below or above, where it is right now, is not something that we're going to discuss.
Okay. Just secondly then, could you give us a great profile through 2019 at Candelaria with the stockpile material being -- versus in the first half and then Phase 10 in the second half, how is that going to evolve?
Yes. Well, as you would expect, as we're running the lower grade stockpile this -- for the first half of the year, it'll be lower and we'll have an increase in the end of the year. We don't forecast grade by quarter, but we will expect that the second half of the year would be better than the first half of the year.
Your next question comes from the line of Fahad Tariq with Crédit Suisse.
So just going back to the capital allocation and returning to shareholders, have you looked into the opportunity of a special dividend in 2019? Is that something that could be on the table, let's say, end of the year, if by October, you haven't seen an interesting or value-added acquisition opportunity? Is that something that's on the table?
Yes, but that would be one of the options that we would look out along with other options.
Okay. And then just as a follow-up. Can you remind us on potential acquisitions? What criteria are you using to assess opportunities in the market right now versus investing internally?
The external opportunities that we're looking at, we have a number of criteria. We would prioritize copper over other base metals with zinc polymetallic as second and nickel a very distant third. We have some no-go zones that have not changed over time, which would be Russia, China, probably won't see us going into Asia-Pacific. We've really been focusing on the Americas, Europe and Eastern Europe. And we are prioritizing life-of-mine as one of our criteria. We've done well with Eagle. But unfortunately, the nickel price has not served us well and with the shorter life-of-mine, it may be that we don't catch a cycle in nickel. And that's unfortunate for our investment in Eagle. So we'll make our money back, but we won't have a nice high-price cycle by 2024, is a possibility. So we feel that we can get the best value, if we focus on life-of-mine over a short-life, high-grade asset. So those are the types of things that we would consider when we're looking at the M&A.
Your next question comes from the line of George Topping with Industrial Alliance.
Marie, the jump in sustaining CapEx at Neves from Q3 to Q4 was quite substantial. Was that related to the contract or performance at Neves?
In the sustaining CapEx? No, it's according to plan. It would be when we're doing development mostly. A lot of our sustaining CapEx is underground development. But we're also doing some water treatment and other things in terms of that. We did have some underground mine fleet that we took in the fourth quarter. And so that would have increased the CapEx. Peter, Jinhee, was there anything else that you can think of.
No.
It is the timing of payments.
Yes, so nothing untoward there. We did have some new LHD for the underground. And so that came in, in the fourth quarter, which might have provided a little bump there. And I have to say, thank you for the first noncapital allocation question.
Just secondly, but following up on that, how is the contractor performance and general labor conditions at Neves, right now?
Yes, the labor conditions are good actually at Neves. The contractor performance varies depending on what the contractors are working on. We found that our underground contractors for production have been performing quite well. Some of the zinc contractors, we've had performance issues, which we're working on with the contractors and the senior management of those contractors. Peter, anything to add there?
No, you covered it.
Your next question comes from the line of Stefan Ioannou with Cormark Securities.
Just curious with Candelaria. Obviously, the move into sort of the Phase 10 ores and you call mid this year. Just wondering, the all-in sustaining cost profile for Candelaria this year, should we expect it to drop-off notably, call it, midyear? Or is it -- or the cost going to remain relatively high sort of for the better part of this year, do you think?
Yes, the all-in sustaining was high this year, because of the stripping and the other things. So as that falls-off and, especially when you have a little lower denominator, so the production, and on a per unit basis, the more you produce the better that cost looks. So we should see an improvement in the all-in sustaining going forward.
Okay. And then just in the slide deck, you mentioned at Eagle that a seismic survey was done. Just out of curiosity, was that something that was sort of focused on immediate satellite targets to Eagle nickel magnetic systems? Or is it something that was sort of more regionally encompassing?
Yes, we did both. We did a regional survey as well as things on near mine. So there is a comprehensive program for both of those aspects.
Can you comment on the results like were they -- with anything compelling come out of it? Or...
Too early to tell.
Your next question comes from Dalton Baretto with Canaccord.
Marie, I have to take you back to the capital allocation question here. Your M&A criteria has remained pretty stringent under both Paul as well as yourself. But as time goes by without a transaction, are your investors pushing you to relax some of these criteria? And if so, which ones are they mostly focusing on?
I wouldn't say that they're pushing us to relax it at all. Actually, it's the opposite. They -- most investors don't want us to spend on something just for the sake of spending the money. And we don't either. So I think, we're aligned with the majority of shareholders on that. And we haven't had a lot of push to do something and to give up on our diligent approach. And where we have seen a variety of opinions is on, whether to do a buyback versus continue to seek growth. And I think that remains something where shareholders are very inconsistent in their feedback to us as to what they want us to do. Some people say they don't want us to do any buyback at all and we should be going 100% full on growth and others like the buyback. So that's when where we get conflicting messages and there are different opinions among shareholders, and sometimes very strong opinions. I think that's the one issue where, at a certain dinner we had with a bunch of shareholders, the 2 of them almost came to blows over buyback. And so there are some strong opinions on growth versus buyback and other things. But they haven't been pushing us to just spend the money on something, which is good, and neither has our board.
Okay. And then just in terms of the geographies you mentioned in terms of no-go zones, you didn't mention Africa. Are there certain jurisdictions in Africa that you would consider entering?
Yes. I mean, we are not in any rush to go back to Congo. We've said that a few times. And for big investments, there are not a lot of places in Africa where we'll make substantial investment. There are a few places in Africa that would be probably good to operate. We don't see a lot of copper opportunities there.
Okay. And then just maybe one more for me, and this one's on the assets. Candelaria is -- the underground seems to be ramping up really well. Since we were on site, has your thinking changed or evolved at all in terms of the larger scale expansion from underground?
We're studying it. So again, that's one where it's too early to tell. We're looking at that. Right now, we're very focused on completing our EIA, so that we can get the 2040 plan in place and be able to bring, La Española, which is the satellite pit into the mine plan and set the stage to execute on that 180,000 tonnes per annum for the next 10 years profile. So that's where our focus is right now. But we do have a group that's studying future underground potential.
Okay, great. And just maybe one last one on Neves. I understand ZEP is the primary focus there, but what's the thinking now on bringing Semblana into the mine plan?
That's another one where we really don't want to divert the local guys from focusing on, on the zinc expansion and making sure that's successful. But we do have our technical services team looking at base study to bring that in.
Your next question comes from the line of Andrew Quail with Millennium.
Marie, just on the capital allocation. Isn't there a happy medium here between buybacks and growth? You guys came out with something in December, and so far it hasn't been executed. Is there something that we can do with the board to maybe have some of this under automatic instead of discretionary?
Yes, we can look at that and that's we'll assess as we go on through the year and we know that the possibility is available to us, and we will consider that as the year progresses.
I mean, given you guys are looking for growth opportunities, which is the right thing to do, is -- maybe half the buyback needs to be on an automatic sort of given to a broker, so you guys can still buyback shares, when your stocks are undervalued without being sort of in blackout.
Yes. No, I fully understand where you're coming from, and it's something that we discussed at the board level. So we may or may not take advantage of that opportunity later in the year.
Your next question comes from the line of Oscar Cabrera with CIBC.
Marie, if -- I just wonder if you can clarify for me. You mentioned in your M&A strategy, you're privatizing life-of-mine, but then you also said that the best value comes from short-life and high-grade. So can you just reconcile that? And what sort of scope of projects are you looking at in terms of production?
Yes. Sorry, Oscar, I'm not sure, maybe it was a misunderstanding. I was prioritizing life-of-mine, because the short-life, high-grade is great, but you may not catch a cycle in order to make really good cash flow from that, which is what we're seeing at Eagle. Since we bought Eagle, the nickel price has been below $6 for the majority of the time and for a lot of the time, it was even under $5.50. So we're not benefiting from the great asset that we have there, the way that we should. So we're really prioritizing the life-of-mine. So I'm not -- sorry, if I wasn't clear on that in terms of that. So we really feel that you need a long-life asset such as -- and we've seen it with Candelaria, where you can look at the long term and being able to work on that over a very long period to improve and continually upgrade through continuous improvement in exploration and other things, so that you continue to increase the value. And when you have a short time frame, it's more difficult to see those type of meaningful improvements.
Okay. No -- that's helpful. And so do you -- if I understood correctly, you would prefer something of the size of Candelaria versus Eagle. So are you looking at corporate projects in excess of 100,000 tonnes?
We're not fussy on the size. If it's something that has a very long mine life then you can turn the size into something bigger. If you had something that was lower in the 50,000 tonnes per annum range and it had a 20-year mine life then that's something that you can work with to see how you can get that up. So -- and I think, in this environment, honestly, Oscar, we can't afford to be that fussy. I know our criteria before it was. We wouldn't look at anything below 75,000 tonnes per annum, if it was an operating asset. But, I think, there are other opportunities that have the possibility to be improved that we shouldn't turn away from just because it doesn't get a specific size criteria.
Okay. That's helpful too, Marie. And then lastly, if you could put this into context for me. So you talk about growing, which is great. Your EBITDA estimates that we have consensus both for the year is around $600 million, but closer to $1 billion in 2020. When you think about growing, like what size of EBITDA you're looking to achieve? Or is there a metric that you're using internally in terms of getting to that growth profile, growth in EBITDA, growth in cash flow?
We're not really looking at EBITDA as a target. We're looking at profitable production. So things that add value in terms of profitable production and adding to our NAV is more so in -- within acceptable rate of return. So we would run a bunch of different scenarios and look at value accretion, whether it be from NAV, cash flow per share is one, things like that. But EBITDA per share isn't one of them, to be honest.
Right. And I'm wishing -- or extending my welcome here. But just, again, to put it into context, Candelaria originally would have been like almost a $2 billion project back when and now closer to $4 billion. So are you looking to invest in something that provides you that P/NAV accretion, but you have to upfront $4 billion for it?
Well, if we had to upfront $4 billion and then spend in order to build it then that's too big of a bite size for us. That's something you need to partner on.
Your next question comes from the line of Lawson Winder with Bank of America.
So just first-off, I guess, back to acquisitions. So I mean, it seems to me that the opportunity set in the acquisition space has remained relatively constant and then, the number of companies publicly stating that they're looking to buy assets has grown exponentially. And so where I'm going with this is, I assume, there's price pressures. But what I'm more interested in is, in what buckets of potential acquisitions are you seeing price pressures? So operating versus shovel-ready versus early-stage sort of exploration? I mean, if you are seeing any price pressure at all, but, I assume, you aren't, based on your comments earlier, I guess you've indicated that today.
Yes, I'm not sure what comment would've made you think that. But price pressure isn't our problem at the moment. It's finding the right asset to then negotiate a price on number of things. People don't even want to have a conversation. So we're always open to conversations and to see, if we can get to the right price for things. But often times there's not even a conversation started. So that's the difficulty. And there are a number of things that I think are good potential assets for Lundin Mining. And we're working on them hard. So we'll hopefully have something, we will be able to act on later in the year.
Okay. So in that vein in terms of conversations that are opening up, are you seeing more conversations in one particular asset type open up then another?
Well, let's see, the merger mania that's occurred in the gold space has not taken hold in base metals as yet. There's not a lot of conversation on the corporate level. There's a lot of conversations on an individual asset level.
And your final question comes from the line of John Tumazos with Very Independent Research.
What return on equity threshold is well enough to justify not operating the mines? You made the comment that Eagle's being run, basically, through the nickel bear market without getting the good year. And just looking back on 2018, the ROE was just over 5%, and a good bit of the cash balances, cash follow and earnings disappeared. So I'm just wondering, in terms of ROE, where is it better to just preserve the reserve and not run the mines?
Yes, I think, on a purely textbook situation, you could have a simple answer to that question. But I think, where you have communities and mines where you're employing thousands of people, it doesn't make sense to have that conversation unless you're losing money. So for example, at Eagle, sure, nickel is $0.8 and we're not making cash hand over fist, but it's still making very good cash flow and there's a community and a workforce that depends on the mine. So I think if you were to look at those questions and say, oh, this -- we're going to put this on mothballs, because it's not making a 15% return and it's only making a 5% return and you lay off a bunch of people and you hurt your communities and you've just lost all of your support in that community. So I think the cost of doing something like that on a purely financial basis question would be much more severe than helping your community and if you're making cash flow, continue to operate the mine. So I know what you're getting at, especially with a great resource like Eagle, why run it at $4.50, if you can wait and run it at $8. But the reality is that for the community and for the workforce, it's not realistic to shut down the mine, if it's making money.
Marie, if I could ask another question. I was confused and I probably misunderstood the capital allocation discussion early in the call. Is the situation that the officers want to sell shares as they exercise their options and that conflicts and prevents the company from buying back shares and, therefore, you have to have an automatic third-party execute a purchase program?
Yes, that's correct, because the concern of the TSX is that we are making the market for the officers to trade. So if they're in the market and, of course, when people exercise their options, they may sell the entire amount, they may sell enough just to pay their taxes, but they're selling. And if the company is buying then we could be on the other end of the trade with the insiders. So that's the concern and that's why we are restricted.
So you could tell the officers not to sell. And some people think there's too many managers here, some of them are overpaid in the mining industry anyway.
I could tell them not to sell. I'm not sure, I have a legal right to tell somebody that their options have been expired.
But you can always fire them.
I could. I could. However, I just assembled a good team. So I'm -- I'd quite like to keep them.
That concludes our question-and-answer session. I would now turn the call back over to Marie Inkster, for closing remarks.
Okay. Thank you, everyone. And we'll look forward to speaking with you at the next quarter results conference call.
This concludes today's conference call. Thank you for your participation. You may now disconnect.