CA - Torex Gold Resources Inc. (TORXF) Q3 2023 Earnings Call Transcript

2023-11-15 13:03:02 ET

Torex Gold Resources Inc. (TORXF)

Q3 2023 Earnings Conference Call

November 15, 2023 9:00 AM ET

Company Participants

Dan Rollins - Senior Vice President, Corporate Development and Investor Relations

Jody Kuzenko - President and Chief Executive Officer

Andrew Snowden - Chief Financial Officer

Dave Stefanuto - Executive Vice President, Technical Services and Capital Projects

Conference Call Participants

Don DeMarco - National Bank Financial

Eric Winmill - Scotiabank

Presentation

Operator

Thank you for standing by. This is the conference operator. Welcome to the Torex Gold’s Third Quarter 2023 Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask the questions. [Operator Instructions]

I would now like to turn the conference over to Dan Rollins, Senior Vice President, Corporate Development and Investor Relations. Please go ahead.

Dan Rollins

Thank you, operator, and good morning, everyone. On behalf of the Torex team, welcome to our Q4 2023 conference call. Before we begin, I wish to inform listeners that a presentation accompanying today's conference call can be found under the Investors section of our website at www.torexgold.com. I would also like to note that certain statements to be made today by the management team may contain forward-looking information. As such, please refer to the detailed cautionary notes on Page 2 of today's presentation, as well as those included in the Q3 2023 MD&A.

On the call today we have Jody Kuzenko, President and CEO; Andrew Snowden, CFO; as well as Dave Stefanuto, Executive Vice President, Technical Services and Capital Projects. Following the presentation, Jody, Andrew and Dave will be available for the question-and-answer period. This conference call is being webcast and will be available for replay on our website.

Last night's press release and the accompanying financial statements and MD&A are posted on our website and have been filed on SEDAR. Also note that all amounts mentioned in this call are U.S. dollars unless otherwise stated.

I will now turn the call over to Jody.

Jody Kuzenko

Thank you, Dan, and good morning to all on the line. Welcome to the Torex Gold Q3 2023 results call. I'll open my remarks by saying that while the third quarter was challenging on a number of fronts, it's behind us. And we're well on track to achieve full year production guidance for the fifth year in a row. We produced 85,000 ounces in Q3, now partway into Q4, open pit grades are picking back up as expected. October production came in at 41,500 ounces, and that is with a planned 105-hour plant maintenance shutdown to start off the month. We're now through the high-strip, low-grade phase of the Open Pit Mine plan and expect more consistent production moving forward. As we announced at the end of October, Media Luna is advancing to plan and remains on track for first production in late 2024, with breakthrough of the schedule-critical Guajes Tunnel on track for late December, a full three months ahead of plan.

In addition, drilling on both sides of the river continues to demonstrate the resource potential of the property, and we'll have more updates on the drilling over the coming weeks. Opening highlights for this quarter's call include, first, ounce production was impacted by the sequencing of the Open Pits, which saw us rely heavily on lower-grade stockpile ore and lower-grade run-of-mine ore. The impact of the lower-grade feed was partially offset by sustained performance excellence on throughput and recoveries in the mill, as well as another new quarterly record on mining rates in the ELG Underground.

Total cash cost guidance and all-in sustaining cost guidance has been revised higher, with about half of the increase reflecting the ongoing strength of the Mexican peso, and the other half the combination of the higher mines and process volumes. We're removing a lot of material to help offset some of the lower process grades during Q2 and Q3. We've also revised 2023 full year CapEx guidance on Media Luna to reflect the spend we have achieved year-to-date. This should come as no surprise; we've been talking about it since earlier this year. And notably, on Media Luna, just late yesterday, we received our final permit for the in-pit tailings deposition at Guajes, which means that we are now fully permitted to start operations. So, this is a significant de-risking milestone for us.

In terms of the agenda for the call, it's the usual. I'll provide a brief reminder on the strategic pillars, which continue to frame our execution plan. Then I'll step you through the key business and operational highlights specific to the third quarter, then over to Andrew Snowden on the financials, then Dave Stefanuto on Media Luna. I'll make some closing remarks and then hand the call over to the operator for Q&A.

Starting on slide 4 with review of our strategic pillars, which set out the long-term vision of Torex, the strategy remains unchanged. You can see on this slide the five key areas of focus that frame up our work as we make our way to the finish line in 2023. First, on optimize and extend ELG, drilling at the ELG Underground continues to demonstrate the potential to replace reserves and grow resources, which in turn provides us with confidence in our ability to extend the life of that mine well beyond 2026. On de-risk and advance Media Luna, with 15 months left in the project, we're sitting at about the halfway mark on completion. Underground development and construction are tracking to plan, and we made some solid progress on the engineering front in the corridor, which should in turn support increased procurement activity over the coming months.

Surface construction is now picking up pace, with concrete being poured across multiple work areas, and steel erection on the flotation plant on track for year-end. On grow reserves and resources, drilling at EPO highlighted the potential to upgrade additional inferred resources to the indicated category, which will support initial mine planning and an internal economic assessment next year, which, if positive, we expect to pave the way for another new mining front on the south side of the river. We have a few exploration releases in the Q, so you can expect to see some additional news on this front over the next three months. On the pillar of crude and capital management, we close the quarter with available liquidity of $501 million. This is compared to the $506 million remaining to be spent on the Media Luna build. This strong balance sheet, combined with another 15 months of free cash flow from ELG, has us well-funded to bring Media Luna into production in late 2024.

On ESG excellence, we close the quarter with a lost time injury frequency of 0.47, with no lost time injuries during the quarter. Post quarter end, the ELG operation, this is employees and contractors now, surpassed 10 million hours lost time injury-free for the third time since 2020. I know I'm personally pretty proud of that one. I know the team is as well. There are very few mines that achieve this milestone once, let alone three times in the span of four years.

Turning to slide 5, despite the fact that the operations are running very well, we produced 85,000 ounces in the quarter, which places us at 316,000 ounces through the end of Q3 against full year guidance of 440,000 to 470,000. We remain on track to achieve full year production guidance with Q4 expected to be the strongest quarter of the year, driven by grade coming back up within the pit as we're now in the higher grade benches at the pushback. With the stripping quarters behind us and grade coming back up, we'll just keep doing what we're doing with consistent throughput from the plant and consistent performance from the ELG Underground and bring this year home as planned.

On cost, due to the impact of the stronger Mexican peso, the focus on waste stripping and the lower ounce denominator, both total cash costs and all-in sustaining costs were elevated during the quarter. With the period of heavy stripping now behind us and improved open pit grades, costs are expected to materially improve in Q4, just not enough to get us back in line with original guidance. Cash flow from operations was $44 million, impacted by the lower gold sold during the quarter, as well as a higher proportion of waste stripping expensed versus capitalized. We expected material pickup and operating cash flow in Q4 driven by the strongest quarter of the year production-wise, lower costs, and continued gold price strength. With a spending of $99 million on the Media Luna project during the quarter, we closed the quarter with $209 million of cash on hand and available liquidity of $501 million.

Turning now to some operational highlights on slide 6, you can see there on the top left that shows the quarterly production I've already discussed. Top right demonstrates the steady performance of the process plant. Throughput has surpassed 13,000 tons per day for the last three quarters and we expect a similar level of performance in Q4. Bottom left, you can see the quarterly dip in grade reflected on the chart, which is now behind us. And finally, on the bottom right, we set another record in the ELG Underground with average mining rates in excess of 2,300 tons per day. We'll keep the foot on the gas here in Q4 before pulling back on rates in 2024. On this point, I would note that 2,000 tons per day in that range is an optimal level for that underground asset based on current reserves.

Moving to slide 7, which is the overview of our annual guidance. We're on track to achieve full year production guidance. Open Pit grades are picking up as expected with the average processed grade in October at 4.05 grams per ton, which compares to an average grade of $2.47 grams per ton during Q3. As noted earlier, total cash cost guidance is up $95 an ounce from midpoint, while all-in sustaining costs is up $75 per ounce at midpoint. The only other change to CapEx is at Media Luna, where we're now anticipating spending between $360 million and $390 million this year versus the original guidance of $390 million to $420 million. We have noted that spending was tracking towards the low end of the guided range in the October Media Luna update. So the update here really just reflects spending through the first nine months of the year. I want to emphasize that the lower spend in 2023 doesn't have any impact on the project schedule and Dave will step you through this in some detail later in the presentation.

On to some exploration news in slide 8. In July, we provided an update on the ELG Underground which continues to reinforce our confidence in extending the reserve life of that asset well beyond 2026. Our understanding of the structural controls of the deposit continues to be refined specifically around that north-northwest trending corridor. We're putting the final touches on another ELG Underground results release and expect to publish that in the coming days. A bit of a spoiler alert here, there's some very nice holes in there that continue to reinforce our confidence in the long-term potential of this deposit.

Moving now to slide 9, the success on the north side continues to be replicated on the south side of the Balsas River with drilling at EPO, delivering two key findings. First, infill drilling along the southern portion of the deposit has demonstrated similar grades and widths as previous drilling, which bodes pretty well for our ability to upgrade additional inferred resources to the indicated category. And second, step out drilling to the north has confirmed mineralization 500 meters to the north, noting the potential for higher copper grades in this area as well. EPO remains a key focus for our geology and technical teams given the underlying resource potential to both the north and the south of the deposit, as well as the potential to become a future source of mill feed from the south side of the property. Next steps at EPO are to deliver an updated resource at year end. This resource will form the basis for some mine planning work which will in turn form the basis for an internal economic study. Given the proximity of EPO to the Media Luna infrastructure and what we can clearly see as the mineral endowment, we're quite eager to see these results. We expect to have a couple of more exploration releases out on the south side drilling activity over the next few months. First up is expected to be a release on our initial drill program at Media Luna West and subsequent to that, our final results from the drilling this year at EPO.

With that, I'll pass the call over to Andrew to take you through the financial performance and the balance sheet.

Andrew Snowden

Okay, thank you, Jody, and good morning, everyone. And starting first on slide 11, our financial performance in Q3 reflects the lower production and sales volumes achieved during the quarter, as well as the tail end of the high stripping phase in the open pit. Just to emphasize, as Jody noted in her remarks, our financial performance is expected to materially improve in Q4, driven by the strongest production quarter of the year and materially stronger margins given the anticipated improved cost performance and continued strength of the gold price. Our financial performance in 2023 to date has also been impacted by the ongoing strength of the Mexican peso, which has averaged 17.8 to 1 relative to the U.S. dollar in the year, and that's compared to our planning and guidance, which assumed a rate of 20 to 1. You'll recall for every one peso move relative to the U.S. dollar, our all-in sustaining costs are impacted by approximately $10 million, which year-to-date has added about $50 an ounce to both total cash costs and all-in sustaining costs.

These grade and foreign exchange factors combined have resulted in Q3 total cash costs of $1,086 an ounce, all-in sustaining cost of $1,450 and adjusted EBITDA $61 million. Finally on this slide is looking at free cash flow, which is shown in the bottom right quadrant. We reported a $70 million deficit during the quarter, reflecting the lower operational performance and the highest spending on Media Luna, which increased $22 million quarter-over-quarter to $99 million. We expect spending on Media Luna to increase again in Q4 as surface and underground construction continues to progress.

And turning now to slide 12, you can see here a summary of our unit cost performance. Despite the ongoing pressure from the stronger Mexican peso, mining costs are tracking well and in line with costs achieved in 2022. In the Open Pit, improved productivity has helped offset peso pressures with unit costs tracking relatively closely to the full year 2022 performance. And at ELG Underground, the continued economy to scale from record mining rates achieved have led to the stronger cost performance you see here year-to-date. At the processing plant, the increased costs relative to 2022 reflects primarily the higher consumable prices which we flagged at the start of the year, as well as the stronger Mexican peso. And that's been partially offset by the higher plant throughput we've seen year-to-date.

And turning now to slide 13, you can see here the $17 million in negative free cash flow in the quarter resulted in an expected decrease in our cash balance $209 million as of September 13. The key drivers, you can see in the waterfall here, of its use of cash were primarily the capital expenditures, where we invested $112 million during the quarter, reflecting the increased spending on Media Luna of $99 million. And that Media Luna spend was partially offset by working capital adjustment of $14 million, which reflects invoices accrued versus paid during the quarter. Also, just to point out, quarterly tax payments were $12 million in Q3, and that's below the $6 million to $7 million of monthly tax installments we anticipated in the year. And that's really just given the lower taxable income we saw in Q3. I do though expect the monthly tax installments in Q4 to remain at these levels. And that's because the higher taxable income we expect in Q4 will be partly offset against the income tax receivable to [inaudible] company within at September 30. Based on level of spending on Media Luna over next 15 months, we expect free cash flow to remain negative through to the end of 2024 before improving in 2025 with a ramp up of Media Luna and the material decline in capital expenditures.

Turning next to slide 14, you can see here that despite the increased capital spending in Q3, our balance sheet remains strong, continuing to position us well to fully fund Media Luna. We closed out the quarter with $209 million in cash, and further $292 million of available capacity on our credit facilities, and so a total of $501 million in available liquidity. You will also note our lease obligations have increased during the quarter to $21 million as further advanced payments were made by our lessor to the Media Luna mobile equipment suppliers. We started to receive some of this equipment in Q4.

As demonstrated next on slide 15, you can see how this liquidity well supports the remaining forecast capital expenditure on Media Luna while also supporting our broader strategy to invest meaningfully in exploration and drilling while maintaining a strong balance sheet during the build period. We now estimate only $106 million of cash flow generation is required from ELG over the next 15 months to fund our strategic objectives, and that includes the $508 million remaining on Media Luna as well as our strategic goal of maintaining at least $100 million on our balance sheet. This internal cash flow requirement compared with $184 million of free cash flow generated prior to spending on Media Luna project over the last 12 months, and this includes Q3, which in our view does not reflect the true cash flow generation of the ELG operations.

If you extrapolate this last 12 months free cash flow from ELG over the remaining 15-month project period, it implies $230 million of cash generated from the existing operations compared to the $106 million requirement. This is why we're confident on our ability to fund the remaining expenditures on Media Luna and fund the many cost pressures arising from the Mexican peso. Finally, now, there's an update on hedging, which you can see summarized here on slide 16. There'd be no change to the go forward contracts with respect to both volumes or price through to the end of 2024. As we've noted in the past, we don't enter into gold hedges lightly. We thought it was prudent to execute these purpose-built hedges to protect between 25% and 40% of quarterly production during a period where internal cash flow was a key source of funding for Media Luna. An area where we have added protection is Mexican peso. We have now placed zero-cost collars on over $100 million of future capital expenditure between October 2023 and December 2024. These collars have an average peso floor price of 17.4 and an average ceiling of 20. Given the strength of the peso, we thought it to be prudent to try and minimize any further downside risk related to the peso, given about 40% to 50% of the remaining project expenditures were expected to be denominated in pesos. Recall, consistent with our operating plans, the $875 million of Media Luna capital had assumed an average peso of 20 to 1. We will, though, continue to evaluate foreign exchange markets and may consider some additional protection should the ongoing volatility present an opportunity to do so.

And with that, I'll hand the call over to Dave for an update on Media Luna.

Dave Stefanuto

Thanks, Andrew. Slide 18 shows the progress at Media Luna after the first 18 months of a 33-month build period. The main takeaway is that at the halfway mark the project is tracking the schedule and budget, noting the ongoing strength of the Mexican peso and the general inflationary pressures are headwinds to continue to content with. At quarter end, the project was 49% complete across procurement, engineering, underground construction development, and surface construction, up from 35% at the start of the quarter. On the engineering front, significant headway was made as we leveraged additional resources to make up for the slow start of the year, which is expected to support procurement and contracting activities over the coming months. Steady progress was made on procurement with the first deliveries under the Sandvik contract made in September. Overall progress was slightly lower than we had expected given several purchase orders and contract awards were pending finalization at the quarter end.

Surface construction activities on the north side are expected to ramp up over the coming months as more concrete work fronts become available and steel erection in the flotation area commences. On the south side, completion of the Mazapa bypass road this quarter will allow for construction activities on the face plant to commence as the roads have been widened to support the delivery of large pieces of fixed equipment. Significant progress was also made with the underground development and construction driven by continued steady advance rates in the Guajes Tunnel and the South Portal Lower as well as mobilization of Dumas, who has been awarded the underground construction and vertical development contract. As of today, we have 20 active headings within Media Luna and have completed over 19,000 meters of lateral and vertical development, representing 63% of the total development required.

During the quarter, we invested $99 million in the project, resulting in a remaining expenditure of $508 million over the next 15 months. As of the quarter end, 68% of the upfront project expenditures have been committed, including 42% incurred. Although, the level of spending is expected to pick up in Q4, we have lowered our guided spend in 2023 by $30 million. The level of spend is expected to remain elevated through Q3 2024 before declining as the project nears completion and achieves commercial production in early 2025. The lower spend has no impact on project schedule given that the spend really reflects the decision to align the installation of the iron sulfide flotation circuit and water treatment plant with the installation of the remaining copper flotation circuit, as well as some modest rescheduling of noncritical elements.

With respect to the iron sulphide flotation circuit and water treatment plant, the rescheduling reflects the reality that the business case for an early installation is no longer warranted, given cyanide consumption levels have been stable at 2.5 kilograms per ton compared to the plus 5 kilograms per ton level experience in 2021 when the schedule was initially defined.

Moving on to slide 19, we'll provide an update on the schedule critical Guajes Tunnel. With approximately 600 meters of advance left at quarter end, we've officially pulled the breakthrough of the schedule critical Guajes Tunnel to late December. This is an amazing three months ahead of March 2024 breakthrough that was envisioned in the 2022 technical report. The progress north to south and south to north has truly been impressive with an advance combined rate, an average combined rate of advance of 11.2 meters per day over the last three months. From north to south, our own crews have averaged 7.5 meters per day, which is world class by any standards, considering the size of the Guajes Tunnel, which is 6.5 meters by 6 meters wide. The additional three months of schedule will provide ample time to install and commission the 7-kilometer conveyor, which will be hung in the tunnel. Anchoring and bolting for the 1,000-plus conveyor tables will commence shortly. All of the conveyor tables are now at site and are over -- has over half of the belt segments with the remainder in transit.

On slide 20 are some recent pictures from the site. The top left picture is a picture of a sunset of the flotation plant, which is really coming together. With the installation of the tower crane, we expect to begin steel erection by year end. In the top center, we see the foundations progressing for the water treatment plant in the foreground and foundation work starting in the back for the new 230 kV substation. To the right, the mass earthworks fill is underway in the location of the new copper concentrate storage and blending building. The lower left picture is the new Mazapa bridge abutments ready to receive the precast concrete beams and bridge deck, which will allow movement of larger loads and materials to Media Luna by year end.

Finally, on the lower right, the medium voltage and fiber optic overhead distribution lines Finally, on the lower right, the medium voltage and fiber optic overhead distribution lines were relocated into buried conduits and successfully energized, allowing the flotation plant construction to proceed.

And with that, I'll now turn it over to Jody.

Jody Kuzenko

Great, thanks Dave. Overall, my closing comments are this. We have a challenging five months behind us. We're well on track to close out 2023 on a solid note, and one which will demonstrate the operational and financial performance our shareholders have come to expect of us. We plan to carry the strong Q4 performance and momentum into 2024, which will be a big year for the company as we complete Media Luna, as we finalize an internal economic assessment on EPO, as we continue to unlock the resource potential of the broader Morelos property with ongoing exploration, and critically, from my perspective, as we make our way back to cash flow in 2025.

With that, I'll pass the call over to the operator for the Q&A period.

Question-and-Answer Session

Operator

[Operator Instructions]

Our first question comes from Don DeMarco of National Bank Financial.

Don DeMarco

Thank you, operator, and good morning, Jody and team. Congratulations on getting through this tough period and also encouraged by the strong results in October. So maybe my first question starts with that. You mentioned that you got an average process grade of four grams per ton in October. And what can we expect for the rest of the year and into Q1 on grades? Certainly, you got a lot of momentum and looking at a strong Q4, but do we expect that momentum to continue into Q1?

Jody Kuzenko

Yes, thanks, Don. And yes, a few tough months behind us. The short answer to your question is we expect grade to return to around 4 grams a ton. We're into the really dense and greasy parts of the deposit at 83 and that open pit pushback and we plan to be mining that through Q4 and into 2024. So momentum will continue, we'll return to usual Torex quarters here and are looking forward to it.

Don DeMarco

Okay, so I see the technical report calls for grades next year, I think of just over three grams per ton. So I think you mentioned that you expect these four grams per ton to continue for a period of time. Does that suggest that production next year is going to be front-end loaded, that Q1 will be heavier in order to kind of reach that three grams per ton average grade over the year?

Jody Kuzenko

Production next year, we're looking at a fairly balanced profile. I would say the exception to that is the plan has us taking a four week downtime at the process plant in October to do the tie-ins and the motor changes and the installation of the VFDs and the ball mills to bring up Media Luna. The grade we expect to be in the four gram a ton range, there may be periods of time in there, Don, that it's three grams, because recall next year, we're mining from 83 in the open pit. We're going to continue to push ELG Underground, and we're drawing from stockpiles with a view to generating smooth production and cash flow as we [inaudible] this transition between the open pits coming offline and Media Luna coming on at the back end of the year.

Don DeMarco

Okay, that's great. So we see that the guidance is revised upward. I mean the new midpoint for ASIC is now $1,180 an ounce, still very attractive relative to industry peers. But also referencing back to the technical report, we saw for 2023 it was $987. So there's about a $200 delta there. Of course we know that the Mexican peso has weighed on a number of operators in Mexico. But is it fair that we should maybe, in looking at our models, adjust some of the ASIC or costs in 2024, 2025, by up by a similar margin as we saw in 2023?

Andrew Snowden

It's Andrew here, Don, so I'll take that. And we'll come out with our full year 2024 cost guidance in January, as we usually do, so we're going to provide more clarity on that at that point. I will just add, though, in terms of impact since the technical report was released in whenever it was, March of 2022, sorry. There have been a number of industrywide factors, including inflation, the Mexican peso that you referred to, as well as some higher cyanide costs that we experienced through the course of 2023. And so those are factors that will put some upward pressure on ASIC. That said, I do expect that ASIC will decline in 2024 versus what we've experienced here in 2023.

Of course, as Jody's mentioned, we're through the heavy stripping phase of the pushback now in 2023, and so we'll see much less waste removal required through the course of 2024. And so you'll see our ASIC normalize more now through the course of 2024, but we'll be out in January with some more specific guidance on that.

Don DeMarco

Okay, yes, great. Well, thanks for that color. Then we'll recalibrate our estimates with those factors in mind as we wait that guidance in Q1. Now, you've got about $500 million left in CapEx to spend and you may have covered this, but what are you thinking about impacts from the Mexican peso or potential inflation on that number. Are you still pretty comfortable with that number or do you think there's -- those factors are maybe putting a little bit of upward pressure on it?

Andrew Snowden

We're still comfortable with the number, Don. I mean clearly, the Mexican peso is putting pressure on our cash expenditure across the board, both operational and capital. I've talked before about, at least as it relates to Media Luna, a one peso impact or one peso movement in the exchange rate has about a $15 million impact on total project costs. And so as you kind of look at year-to-date, we've had a rate of, let's just call it 18 to 1 versus 20. And so over the life of the project, if that was to continue throughout the life of the project, that puts about a $30 million pressure on capital. We are, of course, looking for opportunities as we execute on the project to try and find offsets for that $30 million, but that's where we are seeing some pressure.

Don DeMarco

Okay. Great. Well, that's all for me. Thank you for that. And good luck with the rest of Q4. And congratulations also on that favorable SEMARNAT decision that just came out this morning. Thank you.

Jody Kuzenko

Yes. Thanks, Don. We're pretty excited about being fully permitted.

Operator

Our next question comes from Eric Winmill of Scotiabank.

Eric Winmill

Great. Good morning, Jody and the team. Thanks for taking my question. Just a question on the cyanide consumption. Obviously, it came down in the quarter. Any additional clarity on that? Is it all sort of just ore feed related or are there other measures contributing to that decrease in the cost?

Jody Kuzenko

Yes, I'll take that one, Eric. There are a number of measures that relate to cyanide consumption improving quite materially over the course of the last year. So, number one is we have different feed mixes with different levels of soluble copper and soluble iron. Soluble iron is the primary consumer of our cyanide, and so as we moved out of Guajes and into EL Limon, more specifically, through the middle of this year, that helped. Number two, we have a very disciplined blending program that just keeps getting better and better to control the feed inputs to the plant. What you don't want are the peaks in soluble copper so that you overdose and waste the cyanide. So if you saw our run charts, it’s our SPC charts, we run very smoothly that way. Number three, we've installed some technology called a mock reactor in our leaching circuit. And what it essentially does is it blows bubbles into the solution to help rust out some of that iron instead of it consuming the cyanide. So those three things have really supported us in driving down the consumption. And then the other really relevant factor for us is margin. And we've been able to negotiate some fairly aggressive contracts for unit rates on cyanide that we're pretty pleased with. And we're going to continue to push on our suppliers to get even better rates through next year.

Eric Winmill

Okay, great. No, that's super helpful. Thank you. Maybe just one more for me. Obviously, great to see the permit here for the in-pit tailings. Any comments here? I know you're doing work to prepare for that next year in terms of critical path items before you can start the in-pit tailings.

Dave Stefanuto

Yes, absolutely. In terms of the actual work to start deposition, this is Dave Stefanuto here. To start the input deposition in the Guajes Pit, we do need to prepare the floor of the pit. The preparation is actually quite simple. We've already installed our downstream monitoring wells that we'll use post starting the deposition to monitor any potential seepage and groundwater quality issues. So that work is actually already completed. So the next stage is really installing a drainage system at the base of the Guajes Pit and a pump back system. And so we're scheduled to do that probably starting around mid-next year. It's actually quite simple work. And then there'll be a discharge line for the actual input tailing system to put in place. So we're well positioned. We weren't anticipating originally in the FS to get the permit this early. So we've got quite a bit of time now to do this final installation.

Eric Winmill

Okay, great. Thank you. Appreciate that. And I guess should we assume then are you intending to decommission all the dry-stack or you'll obviously continue to sort of run both concurrently at the outset?

Dave Stefanuto

No, the intent is that we will stop the dry-stack. We will not fully decommission it. There's no rush to do that. However, once we do transition to the Guajes in-pit tailing system, we cannot readily go back to filter tailing without expending some capital to change our facility to do so. So really, that can become a provision in the future should we ever have to go back to filter tailings, we will be able to do that, but now we've got a little bit of work on the infrastructure to facilitate that. So really our plan is once we start Media Luna, we will start in-pit deposition with 50% of the tailings going to the Guajes pit, and then the other 50% will be deposited as part of our paste backfill underground in the mine.

Operator

As there appears to be no more questions, this concludes today's conference call. You may disconnect your lines. Thank you for participating. And have a pleasant day.

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