Lundin Mining Corp

TSX:LUN

Earnings Call Transcript

[Operator]

Good day, and thank you for standing by. Welcome to the Lundin Mining Fourth Quarter 2024 and Year-End Financial Results Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jack Lundin, President and CEO. Please go ahead.

[Jack O. Lundin, executive]

Good morning, and welcome to Lundin Mining's Full Year Fourth Quarter 2024 Earnings Call. Last night, we reported our operating and financial results. A copy of our news release and presentation are available on the Lundin Mining website, where a replay of this webcast will also be made available. All figures presented today are in U.S. dollars unless otherwise noted. Before we begin our presentation, I would like to remind everyone that yesterday's results and certain comments on the call include forward-looking statements.

Please refer to the cautionary statements on Slide 2 for reference. Joining me on the call today is Teitur Poulsen, our CFO; and Juan Andres Morel, our COO, to present the financial and operating results for the company. 2024 was a milestone year for the company. We posted record copper and zinc production for the year, which translated to strong financial results for Lundin Mining. On the business development front, we increased our ownership in Caserones in the Caserones mine from 51% up to 70%, which contributed just under 24,000 tonnes of annualized attributable copper production to the company in 2024, as these benefits were realized from the first of January and equates to approximately $14,500 per tonne acquisition cost, which is highly accretive for our portfolio.

In July 2024, the company announced the acquisition of Filo Corp, owner of the Filo del Sul copper gold silver project with BHP valued at $3 billion and the 50% sale of the Josemaria project to BHP for $690 million to form a 50-50 joint venture called vicuna Corp. This transaction recently closed on January 15, and vicuna is currently operating as an independent JV unifying the Filo and Jose deposits. The transaction was the largest copper miner acquisition in 2024 and a top 5 M&A deal in the sector last year. The formation of Vicuna Corp has positioned the company on a clear path to becoming a top-tier copper producer.

Vicuna is targeting a new and updated mineral resource estimate at Filo del Sul and Josemaria within the first half of 2025. These resource estimates will form the basis of an integrated technical report, which will outline the development plan for the phased construction of the district in Argentina. In December, we announced the sale of Nevess-Corvo and Zinkgruvan to Boliden for a consideration of up to $1.52 billion. This transaction streamlines our portfolio by reducing the number of operating assets from 6 to 4 and removed two operating jurisdictions, while simultaneously strengthening the company's balance sheet to support our ambitious growth plans in the Vicuna District. We updated our mineral reserves and resources, which contains approximately 10.8 million tons of proven and probable copper reserves. We successfully offset mine depletion and replaced reserves associated with the pending sale of our European assets driven by a combination of the Filo acquisition, which adds an oxide mineral reserve and continued success from conversion drilling, mainly at Candelaria.

Lundin Mining also celebrated its 30th anniversary in 2024, reflecting our long-standing legacy of creating value in the base metal sector, a great milestone and a testament to the amazing people that have worked and continue to work within the organization. Operationally, our asset performed well, delivering on guidance in all consolidated metal categories. As mentioned, annual copper production was another record for the company at 369,072 tonnes and Zinkgruvan production hit a new record at 191,704 tons. We produced also 158,000 ounces of gold in the year. Candelaria had one of its best half year performances in its 30-year history, producing nearly 100,000 tonnes in the second half of 2024.

We generated adjusted EBITDA of $1.7 billion, $1.46 billion of which was coming from our continuing operations when excluding Nevess-Corvo and Zinkgruvan and free cash flow from operations of $873 million during the year. In 2024, we directly returned $227 million in dividends and buybacks. Of note, we purchased 3.3 million shares under our NCIB program in December. I will now hand it over to Juan Andres to go through the operational results in more detail.

[Juan Morel, executive]

Thank you, Jack, and good morning, everybody. We previously released our production results earlier this year. And today, I will speak briefly to some of the details provided in our year-end release. As mentioned earlier, the company met metal production guidance on a consolidated basis for all metals in 2024. Copper production was a record for the company at 369,000 tons for the year and 101,000 tonnes for the quarter. Gold production for the fourth quarter was approximately 46,000 ounces, and for the full year, 158,000 ounces, which was in line with guidance.

Candelaria had a strong second half producing almost 100,000 tonnes of copper. In the fourth quarter, the mill processed 7.6 million tonnes of ore and produced 49,000 tonnes of copper. Full year production at Candelaria was 262,000 tonnes of copper, which was just under guidance as high-grade material in the second half of the year trade-offs in December, which was expected to continue to the end of the year. Caserones performed well and hit the midpoint of the original guidance of 120,000 to 130,000 tonnes. The labor action in Q3 impacted overall production for the year. During the fourth quarter, the mine produced 32,000 tonnes of copper, higher production volumes were driven by higher throughputs, which totaled tons for the quarter with an average of 4,300 tonnes per hour, also a record for Caserones.

Chapada was second half of the year weighted. During the fourth quarter, throughput was good at 5.9 million tons, which produced 12,300 tonnes of copper. Combined with higher grades, it was the best quarter of the year. In the first half of the year, Chapada produced 19,300 tonnes versus the second half at 24,000 tonnes of copper for a total on a full year basis of 43,300 tons. Zinc production was higher quarter-over-quarter at 52,000 tons and a new quarterly record, which contributed to a year leasing production record for the company. Production at Nevess-Corvo was 28,000 ounces of zinc and production at Zinkgruvan was 24,000 tonnes for the quarter. In December, we announced the sale of Nevess-Corvo and Zinkgruvan to Boliden for a total consideration of up to $1.52 billion. We expect this transaction to close in the second quarter of this year, as such, these assets are held in our portfolio as discontinued operations.

On a consolidated basis for the year, Lundin Mining produced 192,000 tons of zinc, which was in line with 2024 guidance. Nickel production was 1,600 tonnes for the quarter and 7,500 tonnes for the year, which was in line with the revised guidance for Eagle. The fall of ground that occurred in the lower ramp in the second quarter impacted production in the second half of the year. This has been remediated, and we expect throughput to return to normal this quarter and for the remainder of 2025. We continue to see progress at our assets and 2024 was a good year. The team will continue to focus on operational improvements in 2025 to drive margins and improve the cost profile of our assets. Thank you. I will now turn the call over to Teitur to provide financial summer.

[Teitur Poulsen, executive]

Thank you, Andres, and good morning, everybody. So before we go into the numbers, it's worth reminding everyone that due to the pending sale of our European assets, we will be reporting the assets and liabilities for Nevess-Corvo and Zinkgruvan assets and liabilities held for sale. And our income statement will show the financial contribution from these operations as discontinued operations. Also, as the deal is structured on the lockbox principle with the lockbox date being 1 September 2024, meaning that all economic activity from these operations from 1 September will be retained within the lockbox at closing of the deal. So with that housekeeping item out of the way, let's move to Slide 11.

As Jack mentioned, with record copper and zinc production, we generated significant cash flow with record operating cash flow from the operations in 2024. Starting with revenue. We generated $1 billion during the fourth quarter, including $165 million from discontinued operations. Revenue for the full year amounted to a record 4.1 billion, including 695 million from discontinued operations. Our sales remain predominantly leveraged to copper with the metal generating 74% of the full year revenue, including discontinued operations, with both zinc and gold also contributing significantly with 9% and 7%, respectively. We expect the copper weighting to increase to around 80% copper once the sale of the European assets is completed.

Our European assets accounted for 16% of our full year revenue but only 14% of our adjusted EBITDA and operating cash flow and less than 9% of the free cash flow from operations. Moving to the next slide. We sold 92,000 tonnes of copper during the fourth quarter, including the volume from discontinued operations. Our salt volumes were negatively impacted by two scheduled shipments from Caceroni being delayed to early January due to weather-related issues and resulting in approximately 20,000 tonnes of copper concentrate being recognized as revenue in Q1, 25% instead of Q4 2024. However, the payments associated with these volumes, approximately $45 million were still received in December. Pricing adjustment on prior period sales of concentrate impacted revenues negatively by 46 million in the fourth quarter. Copper price utilization during the fourth quarter was negatively impacted by the provisional pricing adjustments, resulting in a realized price of $3.75 per pound copper, compared to the average LME price for the quarter of $4.16 per pound copper.

Our full year price utilization of $4.18 per pound copper was above the full year average LME price of $4.15 per copper. At the end of the fourth quarter, approximately 78,000 tonnes of copper were provisionally priced at $396 per pound and remained open for final pricing adjustments, as did over 700 tonnes of nickel at $687 per pound. During the quarter, the company put in place a gold hedge for 62,000 ounces in 2025 at a zero cost collar of $2,500 per ounce with a limit of up to $3,125 per ounce. The hedged volume represents about 75% of the annual attributable gold production after streaming. The company has also hedged 43,200 ounces in 2026 at a zero cost collar of $2,500 per ounce with a limit of $3.455 per ounce. Representing around 50% of the estimated 2026 attributable production after streaming impacts. We see this as an opportunistically driven hedging program, which still provides exposure to an increase in price, but will help reduce any downside over the year and protects our cash cost profile with our guidance on cash cost after by-product credits being based on a gold price of $2500 per ounce.

Moving to Slide 14. Consolidated production costs for the fourth quarter amounted to 589 million, including discontinued operations, which is in line with the previous quarter. Costs at Candelaria and Caserones increased from the third to the fourth quarter due to higher mining rates, mill throughput and increased material placed on leach pads at Caserones. For the full year, production costs totaled 2.3 billion, including discontinued operations, and this represents a 12% increase from the previous year with most of the year-on-year increase reflecting that Caserones is included for the full year in 2024 versus only half the year in 2023. Production cost savings were achieved at Chapada and at Eagle. The cost increase year-over-year of 12% is significantly lower than the copper production increase over the same period, which was a 17% increase.

At an asset level, full year production costs at Candelaria and Caserones remained relatively flat year-over-year. At Chapada, costs have come down from 370 million to 283 million, with our asset optimization efforts really paying off. An optimized mine plan at Chapada has allowed us to have mined around 8 million tonnes less compared to the previous year, and this has driven a large part of the savings. Local currencies in Chile and Brazil have weakened during the year and also this held site cost to some degree. Switching to Slide 15 and Candelaria's full year cash costs were in line with guidance and lower compared to last year due to higher gold by-product credits, favorable exchange and higher production volumes.

Cash costs for the year were $1.73 per pound. Cash costs at Caserones were $2.51 per pound for the year, which was below guidance and benefited from favorable foreign exchange and strong cattle production during the year. Chapada's full year cash cost of $1.50 per pound were better than original guidance and within the revised guidance range of $1.55 to $1.65 per pound. Cash costs benefited from strong gold volumes and pricing compared to forecast, which improved by-product credits for both the full year and the fourth quarter.

Slide 16 shows our total capital expenditure for the year, which amounted to sustaining CapEx of SEK 704 million, including discontinued operations, compared to our revised guidance of 720 million. CapEx at Josemaria was 244 million versus a guidance of 230 million. Capital guidance was revised down by $70 million last quarter to reflect the expected yearly spend. The lower sustaining capital investment was the result of reduced stripping requirements and a delay in capital projects and equipment deliveries. Expansionary capital at Josemaria was $14 million higher than anticipated, primarily as a result of foreign exchange movements.

Our full year and fourth quarter key financial metrics are presented on the next couple of slides. As mentioned earlier, the full year revenue, including discontinued operations, amounted to 4.1 billion including fourth quarter revenue of just over $1 billion. We generated adjusted EBITDA of 1.7 billion for the year, including nearly 426 million in the fourth quarter, both of which include discontinued operations. Adjusted operating cash flow for the year was in excess of 1.3 billion with 314 million generated in the fourth quarter. The adjusted operating cash flow reported for the year is net of 184 million of cash taxes paid.

Moving to the next slide. Free cash flow from all operations was 873 million for the year and $466 million for the quarter, which includes our working capital inflow during the quarter of 306 million from collections of receivables at Caserones and due to the timing of taxes payable at Candelaria and a $45 million early payment for the delayed concentrate shipments at Caserones as previously mentioned. Full year adjusted earnings was $359 million and $119 million during the quarter.

Earnings during the quarter were impacted by noncash tax impairments totaling 545 million relating to Eagle, Suruca, Nevess-Corvo and [ Alcaparossa]. The noncash impairment charge at Nevess-Corvo $291 million will be more than offset by a gain on sale of assets relating to Zinkgruvan upon closing of the European asset sale. We remain in a strong financial position and finish the year in a moderate net debt position of just over $1.3 billion, excluding capital leases, but including discontinued operations. With the sale of the European assets expected to close in the second quarter, our pro forma net debt position essentially leaves us in a net debt-free position as of year-end 2024. Our current net debt level corresponds to a leverage ratio of less than 0.8x net debt EBITDA.

Slide 19 presents in greater detailed the sources and uses of cash during 2024. Our operations, including discontinued operations generated cash flow of just over $1.5 billion during the year. And after accounting for sustaining capital spend and excluding exploration and business development costs $58 million, the company generated $873 million of free cash flow from all operations. The company spent net cash of $42 million at the -- on the Filo Share acquisition and paid $25 million as the final part of the deferred contingent payment relating to the Chapada acquisition. The company also spent $350 million on exercising the 19% call option on Casserones, and 10 million related to the deferred consideration. The company had a cash outflow of $120 million on interest paid. The company paid a full year dividend, which amounted to just over $200 million.

Lastly, dividends to noncontrolling interest in Candelaria and Caserones amounted to $152 million. The company ended the year with $432 million on a consolidated cash basis for all operations. The company continues to have a strong liquidity position with available liquidity headroom within our RCF of 1.5 billion as of year-end. With that, I'll turn the call back to Jack.

[Jack O. Lundin, executive]

Thank you, Teitur. In January, we announced updated 3-year guidance for production in addition to operating cash costs and capital expenditures for calendar year 2025. Copper production is forecast to be between 33,000 and 330,000 tonnes on a consolidated basis 2025. Compared to last year's 3-year outlook, the company's European assets have been removed from our future projections. As well, optimized mine planning at our Chilean operations have resulted in changes to the copper production guidance.

At Candelaria, a reduction in overall mine movement from the open pit and underground by about 26% has led to changes in head rates for 2025, which impacted copper production guidance downwards by approximately 6%. Compared to the midpoint of last year's outlook, thereby improving the operating margin of the mine. At Caserones, a more conservative estimate on mill throughput has been forecast to be consistent with throughput rates achieved in 2024 of about 32 million tonnes. Consolidated gold production is forecast to be between 135,000 to 150,000 ounces in 2025. Higher consolidated gold production in 2026 is due mainly to the planned gold grade profile at Candelaria. Ramp rehabilitation has been completed at Eagle and throughput is expected to average 2,000 tonnes per day, similar to 2024 levels prior to the fall of ground.

Nickel production is forecast to be 8,000 to 1,000 tonnes of nickel in 2025, which is an increase compared to last year. A focus on cost control has resulted in cash costs at several of the mine sites decreasing, including Caserones and Chapada. As can be seen on this slide, we have provided a consolidated C1 cash cost guidance of between $2.05 per pound to $2.30 per pound for the year. In general, cash costs at the sites reflect lower treatment and refining costs and higher gold byproduct credits. Next slide shows capital expenditures. This year, we plan to spend approximately $530 million in sustaining CapEx at our four operating mines, which is $130 million lower than last year's guidance.

This accounts for the sale of our European assets and incorporates capital reductions resulting mainly from mine plan optimization work. At Candelaria, the aforementioned updated mine plan results in lower tonnes moved. A large portion of this movement is capitalized stripping, which lowered the sustaining CapEx by approximately $70 million. We have $50 million in expansionary capital this year at Candelaria, which is primarily budgeted for a power line relocation and other 2040 EIA initiatives. In the next slide, we talk exploration, where exploration this year is estimated to be around $40 million and we will target drilling of almost 60,000 meters between Caserones, Candelaria and Chapada. The drill program at Caserones will focus on deeper in-pit drilling to better define higher-grade break fee zones and to continue testing the sulfide mineral potential below the Angelica oxide deposit.

In parallel, within our large district land package, aggressive field mapping and geophysical programs will continue throughout the year to prioritize our best new exploration targets. At Candelaria, drilling targets are aimed to continue to expand the underground resource, while also growing the shallow La Espanola deposit and neighboring La Portuguesa target. Last year, drilling at La Espanola largely offset depletion and the conversion of inferred mineral resources grew the measured and indicated mineral resource categories at Candelaria. While at Chapada, additional drilling at [indiscernible], we'll continue to further define higher-grade resources that will be incorporated into an updated resource estimate and technical report.

At Chapada, I've seen on this slide, we will plan to drill up to 20,000 meters. In January, we closed the joint acquisition of CLO with BHP. This partnership creates the start of a long-term strategic alliance between Lundin Mining and BHP to jointly develop an emerging copper district and sets the stage for a multi-generational growth period for Lundin Mining, that will allow us to become a top-tier copper producer. Vicuna is an independent company that is overseen by a 4-person Board of Directors, two from Lundin Mining and 2 from BHP. The Vicuna Board will be comprised of myself at Teitur Poulsen, and from BHP, Brandon Craig, the President of Americas and the Chair of the Board will be Carlos Ramirez, who is the VP of the Vicuna JV for BHP. The joint venture is being led by Dave Dicaire, the former Executive Vice President of the Josemaria project for Lundin Mining.

Dave has over 40 years of mining, engineering and construction experience from a variety of global projects that includes leading both the owners team and the EPCM team. The development of the Vicuna District envisions an integrated project plan incorporating both the Filo del Sul and Josemaria projects through a phased development strategy. Capital expenditures for the joint venture are forecast to total $312 million on a 100% basis for 2025, half of which will be funded by Lundin Mining. The work plan is focused on drilling, mineral resource estimation, mine planning, metallurgical test work and off-site infrastructure works, such as the road access to the project area.

Vicuna is targeting a mineral resource estimate for both Filo del Sul and Josemaria deposits in the second quarter. The resource estimate will form the basis of an integrated technical report, which will outline the development plan for the phased construction of this district project. The integrated technical report is scheduled to be completed in Q1 2026. The work plan that was developed for Vicuna was established to ensure that the integrated projects will be sufficiently advanced and derisked in such a way that enable eligibility to join incentive regime for large investments within Argentina, otherwise known as rig as a long-term strategic export project.

The [indiscernible] process provides a clear fiscal stability framework for the overall operation during the initial construction period and future phased expansions. As outlined by Teitur and Andres, record production in copper and zinc resulted in strong financial performance for the business. The transactions which were announced during the year, repositioned the company for an exciting chapter of growth underscored by a strong operations base at Lundin Mining. The joint venture will be key to unlocking the enormous value that the Vicuna District represents. Filo del Sul is one of the largest undeveloped copper gold silver deposits in the world, and the partnership with BHP will position the company to create a multi-generational mining district, that has the potential to become one of the largest of its kind.

The divestiture of European assets has simplified our portfolio, strengthening our balance sheet and allowing us to focus on future growth opportunities. Increasing our ownership in Caserones to 70% added approximately 24,000 tons of annualized attributable copper production to the company, offsetting some production loss as a result of the sale of our European assets. It was an exciting year in 2024 for the company, and we are extremely motivated and excited about the year ahead. With that, thank you for your time, and I'd now like to open the lines for any questions.

[Operator]

[Operator Instructions]. And our first question comes from the line of Ioannis Masvoulas of Morgan Stanley.

[Ioannis Masvoulas, analyst]

Couple of questions from my side. First, on Vicuna and the development options. Is the stage development still the base case? Or are you also considering a potential parallel development of JoseMaria and Filo to accelerate the growth opportunity?

[Jack O. Lundin, executive]

Ioannis, this is Jack here. Thanks for the question. Yes, very much we're focusing on a phased development plan. But first and foremost, for us, the key milestone is to come out with a updated resource on Josemaria and a new maiden resource for the sulfide component of the Filo del Sul deposit. Both these resource estimates will form the basis for the integrated project, which will be envisioned to develop in phases. However, with the work that we're doing this year, we'll see kind of how we sequence phases. So Phase II could come in, in parallel as we're ramping up with Phase I. But we're definitely looking at doing this in a sequenced manner.

[Ioannis Masvoulas, analyst]

Very clear. And second question on capital allocation. We saw the buyback of $40 million in December, which you executed despite the large capital commitments in the years ahead. At the current share price, shall we expect you to scale up the buyback, which I believe you could buy back up to 10% of issued capital. And would it also make sense to potentially look at preserving cash to improve your balance sheet flexibility going forward.

[Jack O. Lundin, executive]

Yes. So we've remained consistent in our statement saying that we're committed to continue to returning capital to shareholders. So we've seen our share price and believe that we're trading at a steep discount to our underlying value. And therefore, under our NCIB, we're able to purchase shares in the form of buybacks. So we've initiated that in December. We bought CAD 40 million worth or about 3.25 million shares. And we'll remain opportunistic with our share buybacks. And we declared our Q4 dividend as well when we came out with the results yesterday. So we'll remain opportunistic, but the key for us is to continue to provide returns to our shareholders even while we're looking at growing our portfolio through these development opportunities.

[Ioannis Masvoulas, analyst]

And just one last one, if I may, on the growth optionality. Clearly, focus has been in Argentina. But in the past few years, we have been talking about Candelaria, the [indiscernible] project. We've been talking about Chapada potential expansion. How are you thinking about these projects? Are these on the back burner now? Or do you feel you have technical and financial capacity to consider some of these projects as well.

[Jack O. Lundin, executive]

Yes, it's a great question. And for us, it's very important that we look to pursue opportunities at all of our sites. You mentioned two of them, the underground expansion at Candelaria and then as well, brownfield expansion project called [indiscernible] at Chapada. These opportunities are still very much in the pipeline. We're looking at optimizing and seeing how we can improve margins at our existing operations, but also look at growing production. And so, while we embark on this journey for Vicuna Corp., we're still looking at extracting value by growth and improving margins at our existing mine sites.

[Operator]

Our next question comes from the line of Orest Wakada of Scotia Bank.

[Orest Wowkodaw, analyst]

Just following up on the previous question about plans for the Vicuna District. So with the joint venture now closed, I'm just wondering if the scope of Phase I is still if we should anticipate that to be similar to the stand-alone, the previous plan of about 150,000 tonne a day in Josemaria? Or could that materially change in terms of now that it's a joint venture?

[Jack O. Lundin, executive]

Orest, thanks for the question. Obviously, right now, as we're consolidating both Filo and Josemaria together, we open up for new opportunities and very much we're focused on developing Phase I in a way that it could allow for the rapid expansion and likely bringing in as efficiently as possible the CLO sulfide zone. And so, we're working through this technical report in parallel. And as I was mentioning, focusing on getting that resource estimate out in Q2. And then I think it's going to be -- Phase I will envision a large-scale mining operation, which could therefore, allow for a rapid increase in throughput and overall size and scale of the integrated project. But I think where we're at today, Phase I definitely looks similar to what we were designing when Josemaria was a stand-alone.

[Orest Wowkodaw, analyst]

Okay. Perfect. And in terms of timing, I think you mentioned we should anticipate a technical report on the integrated level in 2026. Does that sort of -- does the time line then suggest we should anticipate, hopefully, a sanctioning decision around the end of '26. Is that kind of the right way to think about it?

[Jack O. Lundin, executive]

As we -- as we go through and set up kind of these milestone targets for Vicuna Corp., the resource estimate, the integrated technical report will further define kind of when that sanctioning date needs to be targeted. But for us, I think with our partnership with BHP, I think we're both very keen and very focused on advancing these projects at pace. And once we get a full understanding of what the integrated project looks like and our ability to sign up for REGI and ensure that we've got a clear fiscal stability framework associated to both the Filo and Jose deposits and looking at this as an integrated project, that will help us with when we can define sanctioning. But for us right now, the resource and the integrated technical report and rig are really the focus.

[Operator]

Our next question comes from the line of Daniel Major of UBS.

[Daniel Major, analyst]

So two questions. First one, just following up on the Argentina development you mentioned about Regi. Can you just give us a reminder of the deadlines, time lines around application. And then a reminder of how much capital needs to be spent within what time to ensure the projects eligible.

[Jack O. Lundin, executive]

Sure. So in July of 2024, last year, the REGI bill was successfully passed through Congress and therefore, we're able to sign up within a 2-year window, which would put us into July 2026 of next year. July '26 -- July 2026. Embedded within that summary indeed sale of the projects that include general information on the project, obviously, location of the activities, the proof that the project can be defined as a single project, thereby integrating both Filo and Josemaria, various investment data. So our capital requirements, our schedule of when we would be putting the capital in the ground. And then the ability to get up to, I think, within 40% of the initial CapEx within the first $2 billion, which is sub 40% of $2 billion within the first 2 years is what would make us eligible for [indiscernible].

[Daniel Major, analyst]

Okay. So 40% of 2 billion, so 800 million within the first 2 years of July '26 deadlines. So after that. So within -- by 2028, you would need to have spent 800 million, is that correct?

[Jack O. Lundin, executive]

Well, it's 40% of when you start the initial capital schedules. So when you start that initial capital investment, that is when you would basically need to be showing you're putting that investment in. Correct.

[Daniel Major, analyst]

Okay. So 40% of the initial capital for the entire project needs to be spent within the first 2 years.

[Jack O. Lundin, executive]

Yes. Phase 1.

[Daniel Major, analyst]

Yes. Sorry.

[Jack O. Lundin, executive]

Maybe just to clarify, it's -- because there are certain thresholds like there's $1 billion or $2 billion. So our project is of such a magnitude that it easily qualifies for the highest bracket, which is over $2 billion. So the 40% expenditure relates to that profit of 2 billion. So irrespective of on our actual CapEx is 40% of 2 billion, which is, as you say, $800 million over the first 2 years, which given the magnitude of our project, we will easily be spending that in any regards when we're off into the construction phase.

[Daniel Major, analyst]

Got it. That's some -- that's very useful. And then second part of my question is a follow-up on the cash return dynamic. I totally understand your comments around wanting to be opportunistic on the buyback. But if we look at the current run rate of the dividend say out to 2030 or slightly further than that? It's cumulative north of $1 billion of capital committed and sort of baseline capital returns. Is that the appropriate level as you move into peak capital expenditure in Argentina? Or is this something that's going to be reviewed and perhaps more of a skew to a lower dividend and more opportunistic buyback?

[Jack O. Lundin, executive]

Yes. Thanks for the question. So when we were looking at putting together this -- the formation of Vicuna Corp., when we were looking at the long-term projections for Lundin Mining, we've always maintained that we would like to be returning capital to shareholders at the rate that we have over the last several years. And so we're very much committed to doing that. But the question around the split between a dividend and buyback. I mean we're going to be commercial in the decision. And given where our share price is trading, we believe right now that buying back stock at these levels is accretive to Lundin Mining and to the shareholders. And so I think the levels that we've projected and what you're saying is pretty in line with what we -- what you can expect.

[Operator]

Our next question comes from the line of Connor Mackay of Ventum Financial.

[Connor Mackay, analyst]

Firstly, I just want to dive into the Filo resource. I know you mentioned that in the press release that it will be likely focused on the Aurora and Benita zones. I'm wondering, is that -- should we be expecting a full inferred resource? Or have parts of the deposit been drilled off to such an extent that we could potentially end up with some indicated supporting future reserve estimates from this first pass.

[Jack O. Lundin, executive]

Connor, so the Filo resource will actually be an update on the entire deposit and including oxide and sulfide. And where there is more definition around drill hole spacing is tighter than we will be able to have more definition and therefore, be more in the measured or indicated category. So it won't just be an entire inferred resource. But of course, as we put all of this together and update the market in Q2 on that, you'll kind of see the entirety of the deposit, not just focused on one area.

[Connor Mackay, analyst]

Awesome. And then just jumping into potentially some color on the mine plan at Caserones I know you mentioned that there were some challenging hydrogeological conditions in Phase 5 that required jumping into the lower grade Phase 6 or sooner than expected. Are those conditions being mitigated? And is it possible to get back into some of that higher grade zone during the year? Or are you looking at that going forward?

[Juan Morel, executive]

Connor, this is Juan Andres. Thank you for the question. We were able to solve the mine awarding challenges that we had in the first half of the year. So as of now, we think that all the wording is under control, so we will resume the original mining sequence. So we don't expect this to become an issue going forward.

[Operator]

Our next question comes from the line of Ioannis Masvoulas of Morgan Stanley.

[Ioannis Masvoulas, analyst]

Yes, I had a couple of follow-ups. First -- and clarifications. First on Caserones, you indicated that delayed shipment of 20,000 tonnes in Q. -- but if we look at the difference between production and sales volume, that's only closer to 5,000 tonne delta. Could you just clarify that point? And then second point on the locked box arrangement, how will the cash flow from the two assets feed through the financial statements until the deal closes, both balance sheet and your cash flow statement.

[Teitur Poulsen, executive]

It's Teitur here. On the volumes, yes, I should say, it's 20,000 tonnes at Caserones of concentrate. And I think the grade is roughly 30% or thereabout. So that is the net sort of deferral of sales from Q4 into Q1. But as I said, we got paid upfront for those shipments. So the cash into came in December. And then you have various other moving parts in just normal year-end sort of shipments, some fall just on the other side of the new year and some come early. So plus the payables, obviously, versus production where you always have a delta of a few percentage points. So I would say the remaining difference is pretty business as usual sort of difference. And then on your question on the locked box.

So the principle here is that from first of September last year, but is effectively the economic hand over of these assets to believe and subject to final close, meaning that any cash generation or indeed and any additional funding going into those assets from is September really is for the account of the [indiscernible]. So whatever cash accumulation occurs from first of September until whenever we close, we'll transfer over to believe and so there will be no adjustment on that cash on closing. The flip side to that is that under consideration, so we have a firm consideration of $1.37 billion and we are earning a 5% interest on that amount from first of September until we close.

So that's roughly an interest income of $6 million per month. So whenever we close believing we'll have to pay us 1.37 billion plus the accrued interest on that amount. So that is the mechanic of the cash flows from the deal, which is which is why we're sort of saying on a pro forma basis, given our year-end net debt of 1.3 billion on a pro forma basis, we are effectively net debt-free at year-end because of that.

[Operator]

I'm showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.