Pan American Silver
Third Quarter 2005 Earnings
November 2, 2005
Operator: Good afternoon ladies and gentlemen, my name is Carlene. I will be your conference facilitator today. At this time, I would like to welcome everyone to the Pan American Silver Corporation Third Quarter 2005 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer period. If you would like to ask a question during this time, please press “star, and the number one” on your telephone keypad. If you would like to withdraw your question, you may press the pound key. It is now my pleasure to turn the floor over to your host, Mr. Ross Beaty. Sir, the floor is yours.
Ross Beaty: Thank you very much operator, and good morning ladies and gentlemen. Welcome to Pan American Silver’s Third Quarter Conference Call. With me in Vancouver today are: Geoff Burns, Pan American’s President and CEO; Andy Pooler, Pan American’s VP of Operations; Steve Busby, VP of Projects; Rob Doyle, our CFO; and Brenda Radies, our Vice President of Corporate Relations.
As is usual, I will open with some general comments. Then Geoff Burns will provide some specifics on some of our projects, and after that we’ll open the call to questions.
Starting with our financial and operating results, we recorded our highest silver production in our history at 3.2 million ounces in the third quarter. Our third quarter gross revenues also reached a new record of $30 million. Cash flow from operations was $7 million and we recorded net income of $2.3 million. These are all much improved results over earlier quarters this year, as we predicted. And we believe the trend of improving results will continue, assuming steady metal prices. Our gross revenue increased by 10% over Q3 in 2004. We realized higher silver production and enjoyed higher silver, zinc and copper prices, but we also saw lower base metal production due mainly to lower zinc grades at our Huaron and Quiruvilca mines, and higher Peruvian royalty costs. Our concentrate shipments were also much reduced due to timing of shipments. We shipped 33,000 tons of concentrate in Q3 versus nearly 38,000 tons in Q3 of 2004. Our cash cost per ounce of silver was 2% higher than in Q3 2004, but 7% lower than in Q2 and 8% lower than in Q1 this year. This is particularly pleasing, given that we had much higher energy and labor costs at all our operations compared to last year. These were driven both by absolute higher oil and gas costs and by a stronger Mexican and Peruvian currency, and stronger Mexican and Peruvian currencies against the US dollar that had the affect of increasing all our local costs such as labor. We also saw much lower zinc and copper production in Q3 due to temporarily lower grades at certain of our operations, and this normally would cause higher cash costs per silver ounce since we deduct base metal revenue before calculating cash costs. So we were particularly happy to see our cash costs declining in Q3 and this is simply due to higher productivity overall and better results, especially at our Morococha and La Colorada operations.
Looking at the bottom line, our earnings, we have seen a solid improvement this year from the $2.9 million loss we experienced in Q1 to, more or less, break even result in Q2 and now our $2.3 net earnings in Q3. That is a quarterly swing in earnings of over $5 million. Compared to last year, our Q2 results were especially good as they take into affect higher depreciation charges this year of $0.8 million; higher G&A costs of $0.6 million due partly to a stronger Canadian dollar that influences the costs of our head office staff in Vancouver; higher reclamation expenses this year of 0.4 million; and, as I said earlier, much lower concentrate shipments this year.
In terms of mine operating earnings, we recorded our 10th consecutive quarter of positive earnings of 4.9 million in Q3. These are good results and I expect we will see continuing improvements looking forward. Looking at our operations, we produced right on our overall budget of 3.2 million ounces and we expect this to continue in Q4, so we should end the year with silver production of about 12.5 million ounces, exactly our target that we provided guidance on in the second quarter. Our star operation was our new Morococha mine in Peru, where we produced 706,000 ounces in Q3 at a cash cost of $1.99 per ounce. Geoff Burns will elaborate on this in a few moments.
Elsewhere in Peru, we had a good quarter at our Quiruvilca mine, producing 580,000 ounces at a cash cost of $3.55 an ounce, our best quarterly performance so far this year. Results at our Huaron mine though, continued to be lower than forecast, with production of 940,000 ounces at a cash cost of $5.13 per ounce. Huaron’s cash costs are being affected by lower zinc production due to lower zinc grades and lower zinc recovery as the veins we are now mining have worse metallurgies than those we have mined in recent years, or more difficult metallurgies than those we have mined in recent years. We are working hard to return our zinc recoveries to historic levels, and this will get our costs down in the future to the extent we’re successful doing this.
In Mexico, production at La Colorada reached record levels in Q3 at 818,000 ounces. Our project to re-open the sulfide mine there is on target for an April startup, and we expect the sulfide production addition of about one million ounces per year will drive our overall cash costs well below $5.00 an ounce when it gets going.
Finally, I am really pleased to announce that our San Vicente mine in Bolivia has reopened with a toll milling agreement at a local mill to treat San Vicente, or until we rebuild an on-site mill there in 2006. We have also re-jigged our joint venture agreement with our local partner there and now hold a 55% operating interest. Geoff will discuss this in a little bit more detail in a moment.
We have two major projects under development right now. In Mexico, we are in the middle of building our Alamo Dorado mine, so far, so good. Geoff is also going to talk about this. And finally, we are in the last stages of a feasibility study at Manantial Espejo in Argentina. This week we are submitting an environmental impact study to Argentine authorities after our public hearings last week. We hope the project can proceed to a construction decision in early 2006 with ultimate production of about four million ounces of silver and about 60,000 ounces of gold, annually. Geoff, would you like to comment on those three projects, please?
Geoff Burns: Thanks Ross, yes I would. The Morococha mine in Peru was our best performer this quarter. Silver production continues to climb, largely as a result of capital investments we had made at the mine in both underground infrastructure and equipment. As Ross mentioned, cash costs for the quarter were below $2 an ounce, reflecting the improved performance of our milling facility, particularly with respect to the recovery of zinc, which is a credit to our unit costs. We will be increasing our processing rate to 50,000 tons per month at Morococha, about 10% above current levels, starting in January of 2006, when we’ve completed some relatively minor modifications to the grinding and flotation circuits of the mill. The mine is already producing near this level and we are stockpiling ore in front of the mill right now. So far this year we’ve spent $1.4 million in exploration at Morococha and the results continue to be excellent. As you know, we added almost 23 million ounces of silver in the first half of this year to our reserves and resources, and with seven drill rigs still turning, I guarantee you that more will be added by year end.
Finally, we have initiated the engineering work to determine the optimum configuration and production rate for Morococha, particularly in view of our exploration success and our expectations relating to the expansion of ore reserves. This study is going to take a number of months to complete, but the initial work clearly suggests that there’s an opportunity to double Morococha production over the next four to five years.
At Alamo Dorado in Mexico the construction of our newest silver mine is right on track. We’ve started pre-stripping the open pit and expect to be in our first ore bench next week, ore which we will stockpile until the processing facility is completed. The truck shop and warehouse facility are done. The lab is being erected. The civil work for the crushing plant and mill facility installations is well underway, as is the construction of our 115 volt power line that will provide the power to run the operation. Alamo Dorado is on schedule to begin production in the fourth quarter of 2006 and I’m equally happy to be able to report it’s on budget, which is $76.6 million, which includes startup working capital and contingencies. Alamo Dorado should produce, on average, five million ounces of silver per year over its eight year mine life, at a cash cost of under $3.25 per ounce.
In Bolivia, we have resumed mining and processing at San Vicente earlier than we planned. We have begun shipping ore to a nearby processing facility that has been made available to us by our Bolivian joint venture partner. This will allow us to generate cash flow, in country, which we can immediately reinvest in our longer term plan to rehabilitate the larger and on site Vetillas mill. The concept at San Vicente is quite simple. We will continue to mine and mill at very modest rates, while preparing the mine and the Vetillas mill for larger scale production, thereby eliminating our out-of-pocket investment. We currently expect it will take us until the middle of next year to prepare the operation to consistently run at a rate of 600 tons per day. While the addition to production this year will be modest at just over 100,000 ounces, our share, we believe our development plans at San Vicente will see the operation become a plus three million ounce a year producer, with cash costs of less than $3 an ounce on a 100% basis. This is a high grade mine with good ground conditions and at least 10 years of life ahead of it. While in an ideal world we would love to own 100% of this kind of project, we feel that a joint venture with a local Bolivian company is prudent in this jurisdiction, so as Ross suggested, we’ve limited our investment to 55%.
Those are my comments, Ross.
Ross Beaty: OK. Thanks very much Geoff. I forgot to mention a comment about the exploration front, which is a subject near and dear to my heart as a geologist. We actually are extremely busy right now, company wide. We currently have 17 drill rigs active at our different projects and mines, all designed to increase our silver reserves and resources. We are, as Geoff said, we are generating tremendous results at Morococha, but we also have had some very interesting new results at Manantial Espejo, Huaron, Quiruvilca and La Colorada.
So, all in all, we had an excellent quarter. But just look at how we are positioned now for internal growth over the next few years. Our 2005 production should be about 12.5 million ounces. With the modest expansions in progress at La Colorada and Morococha, as well as the new production at San Vicente, we are targeted to produce well over 14 million ounces in 2006. Then as Alamo Dorado enters production in late 2006, we will jump to annual production of nearly 20 million ounces. Beyond that, we should see an incremental growth at Morococha and San Vicente, and then new production at Manantial Espejo, to take our total production to well over 25 million ounces, or double this year’s level. And this assumes no new silver discoveries and no new acquisitions. This is all internal growth.
Pan American has grown to be the preeminent global silver mining company, and we are really excited to continue our great growth story achieved since we began as a silver company in 1994. Our aim is simply to deliver the best leverage to silver prices to our investors and we do this by increasing our silver reserves and resources and by increasing our silver production.
Looking at silver markets, we are pleased to see the relative strength in silver this year. It is easy to paint a bullish picture going forward. Continued probable weakness in the US dollar should be good for both silver and gold. Strong industrial demand continues, particularly in China right now, with numerous new applications for silver in the electronics and biomedical industries. Silver supply is growing slowly from mines, but it is dropping in terms of scrap supply, due to less silver being used in photography.
Finally, we are excited about the prospects for a new silver ETF being approved by the SEC to give investors a physical silver, a new and easy way to buy silver for investment. In this environment where silver prices are well underpinned by growing demand and static supply, and with continually declining inventories, Pan American Silver is well positioned to deliver great value to our shareholders. Our reserves and resources are growing and our production is increasing. And our new production, such as at Morococha, is lower cost, too, resulting in the trend we see this year to steadily improving financial results. And on that note I think I’ll open the call to questions.
Operator: Thank you. At this time I would like to remind everyone, if you would like to ask a question, please press “star, then the number one” on your telephone keypad. We’ll pause for just moment to compile the Q&A roster.
Thank you. Your first question is coming David Mallalieu from BMO Nesbitt Burns.
David Mallalieu: Hi Ross, and all.
Ross Beaty: Hello David.
David Mallalieu: A question with regards to, excuse me, Huaron, with regards to the actual production versus the reserve grades. What is the projection for going forward, because your grades are a little bit lower than expected and, let’s say, for the next couple of quarters, and how does this compare against the reserve grades for somewhat higher on the base metals?
Ross Beaty: Andy, do you want to grab this one?
Andy Pooler: Let me look up the, if you give me just a minute, I’ll be glad to answer that question.
Ross Beaty: OK, sure.
Andy Pooler: Answer another question in the meantime.
Ross Beaty: Yeah, we’ll get back to that in a sec, Dave.
David Mallalieu: OK, actually I’ll let someone else take another question then.
Operator: Thank you. Your next question is coming from Ivan Sacks from IE Corporation.
Ivan Sacks: Hi. Good afternoon. Congratulations on good results. I have two very simple questions if you could please assist on. One is being in the silver demand, and that sounds like a basic economic question, but the demand, where’s the demand coming for silver, and has that been, the photography demand, actually replaced by any other demand? Secondly, if you could just paint a general picture for the demand for silver for the next three years. Because it seems like the supply side, you’ve taken very good care of.
Ross Beaty: All right, thanks. Well, I’m only going to do, I could take an hour and a half to talk about this question, so I’m going to do it in a very abridged fashion here. Silver demand, clearly is a function really of four main areas. Number one: industrial demand, which is the dominant supply, dominant demand category now; Number two: Jewelry and silverware demand; and then, well down the list is photographic demand; and then, finally, investment demand. In the last year the trend has been to steadily increase the industrial demand, globally, all sorts of new applications, strong growth in China, but strong growth, really, everywhere. The trend in the last year in jewelry and silverware has been to static or slightly declining demand, largely based around what’s going on in India. Last year it went down because the Indian demand for silver was muted, as silver had gone up so much in price, and it’s quite a price sensitive market. This year it looks like silver demand in India is relatively stable, and actually, relatively strong compared to last year. So we expect to see a pick up in those numbers in 2005 and going forward. More acceptance of the, sort of, base price now of around $7.50 an ounce, and that’s leading to more sales in the biggest silver jewelry market in the world, in India.
On photographic demand, photography, don’t forget, just, oh, 10 or 15 years ago amounted to about over 40% of silver demand. Today that’s down to about 21% and it continues to drop as a percentage of total demand, and also it is a secular decline because of digital imaging. It’s not falling off a cliff. It’s not disappearing completely, but it is in decline because there’s less silver being used in film, and that’s somewhat offset by more silver being used in photographic paper. Nevertheless, there is a decline, but when you actually look at the decline in silver in photography demand, and you look at how much silver is not being returned to the supply sites for recycling of silver, because most silver in photography is recycled. You actually see a very offsetting declining supply to match that declining demand, and the net effect on the silver equation is really very modest. It’s a very modest, but slightly negative effect.
And then, finally, investment demand, which I think is the most important demand today for all precious metals. And that is, clearly, it has gone from a 10 year period, from 1994, or 1993 to 2003, where you saw investment, a negative investment demand. In other words, there was investment supply to the market as people dishorded silver they’d acquired in the 1980s. Too, starting in 2003, particularly picking up last year, and I think you’ll see more, very strong numbers this year, more people are buying physical silver as an investment as an alternative to stocks and bonds, and it’s more in sync with the general trend to more physical commodity acquiring, in really, all metals, by interested investors who want to have alternatives to conventional stocks and bonds. And there’s all sorts of reasons for this, but it has, it’s giving silver and gold very good underpinnings right now, and this should, this should accentuate, if in fact, there’s economic weakness in major global markets going forward. We see particularly good promise in the sector for a strong investment demand if the silver ETF is approved by the SEC over the next four to five months, because that will provide a very low cost, very easily available to any investor, opportunity to buy physical silver, where it’s rather more difficult to do that right now.
I hope that’s, sort of, a short answer to what could have been a very long one, an abridged answer to, what we think, are strong demands on the metals and silver.
Operator: Thank you. Your next question is coming from Steve Butler from Canaccord Capital.
Steve Butler: Yes, good afternoon guys, or, yeah, good afternoon, from Toronto, at least. Silver, sorry, can you clarify the tons milled at Morococha as stated? Is that also 87% basis, gentlemen?
Geoff Burns: Yes it is.
Steve Butler: As stated in the … OK. And also, I guess, Geoff, we saw that you spent $10.5 million in the quarter on Alamo and $13 million in Q4. What remains therefore in ’06? I mean, I can’t remember if you’ve spent before the second quarter, or the third quarter, excuse me, have you spent anything on cap ex for Alamo Dorado?
Geoff Burns: Prior to the announcement of our construction decision, we had spent a couple of million dollars on completing all the feasibility work, et cetera. So, in our numbers, accounting numbers, we show about $22 million having been spent. Against our project budget, which is the $76.6 million that we’ve been discussing, we have spent $19 million of that. We already have commitments for an additional $30 million, as in we’ve got contracts and equipment purchases set up which would take us to about another $26.5 million will come next year. Does that make sense, Steve?
Steve Butler: Well, let me clarify. The $19 million spent through what point?
Geoff Burns: Through right now, through the end of September.
Steve Butler: Through the end of Q3?
Geoff Burns: End of Q3, that’s correct.
Steve Butler: $19 million, OK.
Geoff Burns: So that leaves, yeah, that’s right. It leaves a balance of $56.6 million, of which we’ve already committed to $30 million of that.
Steve Butler: OK. And last question, in terms of the Morococha reserves that you announced in, July I think it was, so, has this affected your depreciation base already in the third quarter Geoff?
Geoff Burns: Well, I’m going to put that one over to Rob who’s with us here, Steve.
Rob Doyle: Yes, Steve, that’s right. Based on those results, there were actually two affects. We did reallocate some of our Morococha accounting costs from non-producing properties on the balance sheet up into properties, plant and equipment. That actually has the affect of increasing the number which we need to depreciate on a terms mode basis. Sorry, correct, on a terms mode basis. I’ll, the, as you point out, the increase in reserves also increases the denominator in that calculation, so, on a unit basis it could go down, but not by a great amount because of those two offsetting factors.
Steve Butler: OK. Thanks very much.
Ross Beaty: Andy.
Andy Pooler: Yes, hi. This is Andy Pooler answering David’s question relative to zinc. Our reserve grade we carry on our books is at 4% zinc. This year we’ve been mining at 2.82%. One of the reasons for that is, we have been deferring a very high grade zinc portion of the mine so we’ve enhanced recovery in the mill. It’s the Alianza vein, which is very zinc rich. That is a portion of the reserves and it’s what carries that higher grade value. As far as reconciliation to the model, on the predicted grade, we have had no problems whatsoever. The model is performing well. It’s all a basis of mine plan and timing or where we put it through the mill.
Ross Beaty: Great. Thanks, Andy.
Ross Beaty: Well, we’ll roll to the next question, then.
Operator: As a reminder to everyone, if you’d like to ask a question, please press “star, followed by one” on your touchtone phones. Thank you. David has come back in queue from BMO Nesbitt Burns.
David Mallalieu: Thanks a lot. With regards to the Alianza vein, when is that going to be scheduled to be brought on? I would expect then, if that’s your weighted average grade of 4%, you’re going to have a bump up when it does come in then.
Andy Pooler: We’re working on our next year’s plans for 2006. The Alianza vein is a component of that plan. We’re currently fixing some of the recovery characteristics, I think as Geoff mentioned, we’re adding to the regrind on the zinc and we’re also adding systems on to some of the flotation equipment to enhance the lead/copper separation, if you will, which in turn will end up enhancing our zinc recovery. So, with all that said that should come into play in the 2006 mine plan.
David Mallalieu: OK. Then I’ll change the question around a little bit, then. The Alianza vein on its own, what does that run?
Andy Pooler: I don’t have that information right before me, but I sure can gather it in short order from Michael Steinmann, our new VP of Exploration.
David Mallalieu: Great, OK. With regards to Manantial Espejo, what’s the status, I mean you’ve been working on it. It’s been a work in progress for quite a while. What have been some of the challenges you’ve been having with regards to optimizing the feasibility?
Andy Pooler: The usual ones, really, you know, David, it’s in a fairly remote area of Southern Patagonia, although it’s right beside the very large Cerro Vanguardia mine operated by AngloGold, it’s still in a remote area. So there’s significant power infrastructure issues and we’re trying to deal with the best way to source power their diesel or bring in a gas pipeline or generate a mill on wind power with enough wind in that area. There’s a whole bunch of tradeoffs in that exercise that you have to do and that’s what we’re very much involved with doing. We’re talking about infrastructure issues, as well, with the local government, housing and so forth. The workforce, where the workforce is going to be located in the local town and beside the mine and those kinds of things. There’s all sorts of the usual technical reviews of looking at a combined open pit and underground mine, which involves lots and lots of detailed scheduling and planning, so a tremendous amount of detail work in that. And then, as I say, as usual, the grind of trying to get good numbers today in an environment where numbers are changing very, very quickly and sourcing procuring supplies is a great challenge, particularly in a country which is not really a dominant mining country like Argentina.
David Mallalieu: Uh huh.
Andy Pooler: So, it’s normal stuff and we’ve been doing various drafts of the feasibility study already. We’ve got some preliminary numbers out and we’re going to try and finish them off by the end of the year.
David Mallalieu: Is there an issue with regards to, and I may be completely wrong on this, OK? So, if I am wrong, please, just correct me right off the bat. With regards to scheduling of the silver component of the deposit and the gold component of the deposit, is that an issue or have I just invented that?
Steve Busby: No. This is Steve Busby. No, there’s no issue with scheduling between silver and gold. We do have certain minor veins that contain more gold than silver, but they’re really mined as we mine our principal veins. So the schedules, although the grades vary year to year on our schedules, it’s not, we’re not seeing any impact in terms of where we go in and target silver over the gold.
David Mallalieu: OK. Thank you.
Ross Beaty: Ok thanks Dave.
Operator: Thank you. Your next question is coming from Terence Ortslan from TSO and Associates.
Terence Ortslan: Thanks. Good to see the progress at Morococha and La Colorada, guys. Let’s come back to Manantial - so then it will not be in a position to finance anything 2006, kind of be going into the year after that, or it going to be in a position to finance in 2006, then?
Ross Beaty: We’re going to be positioned to finance in 2006. Yes, that’s our plan.
Terence Ortslan: And you want to do that internally, Ross, or are you going to do the …..?
Ross Beaty: We don’t know yet. It depends on the final number, the final results of the feasibility study and what we see as access to capital in Argentina.
Terence Ortslan: Is there a ballpark number for this project….
Ross Beaty: I don’t think so, no. We haven’t, I don’t think we’ve stated it, no.
Terence Ortslan: OK. Just come, maybe on the markets, what’s your impression on the, or your take on the ETF as an impact to market thrust?
Ross Beaty: I hope it will. I’m pretty sure it will impact it positively from our standpoint. You know, there was, you know, it’ll increase over-all demand and that usually has a positive effect on price. That’s certainly, I think, the gold ETF has been positive. It’s been well received. It’s a good source of investor interest, and I think it’s a service to the industry. It’s a service to the general investing public to have these kinds of things out there for people to use or not use. There’s been a lot of discussion and there was an interesting letter from The Silver Users Association to the SEC that says that they shouldn’t have a silver ETF because there’s not enough silver around, and there’s liquidity issues and problems. We disagree. We don’t think there’s liquidity problems at all. There’s a very, very liquid market for silver in the London bouillon exchange, particularly on the Comex, and, you know, there’s lots of silver around. There’s, you know, there’s five or six hundred million ounces of silver bouillon in inventory. That’s a heck of a lot more silver inventory than, for example, copper inventories right now, or nickel inventories or lead inventories or maybe even gold inventories, if you exclude The Central Banks. So this, there is lots of silver out there for investors to use as a pool of silver for an ETF. So we think that argument is just plain wrong, and we don’t see, particularly, reasons why the SEC should not approve this. However, we’re not involved in the process. We are certainly rooting for it because we think it’s a service to investors and a lot of those investors are our own shareholders. But we are really outside the process. It’s between Barclay’s and the SEC right now and we hope everything is going well.
Terence Ortslan: The earliest for this to be launched is when?
Ross Beaty: I have no idea. It’ll depend on SEC approval. The gold ETF took about a year. We hope that the SEC will take less time for the silver ETF, which was actually filed, I think, in June. That’s all I can say Terence.
Terence Ortslan: OK, great. Thanks.
Ross Beaty: Thank you.
Operator: Thank you. Your next question is coming from Adrian Day from Adrian Day Asset Management.
Adrian Day: Oh yeah, good afternoon. Returning to Manantial Espejo, if I may, some of the questions were kind of answered, but two questions really, for a significant amount of gold would you be using the gold as a byproduct credit, do you think? And then, secondly, you know, given the challenges, the capital costs and the location, is this a little small to be jointly owned? Would you rather have all of it?
Ross Beaty: The second question’s first. The answer is yes, but that takes two to tango, Adrian, and we’ll have to deal with that, but obviously yes, it’s a nice project. We like it. It’s silver and it’s good. On the question regarding gold, do you want to answer that Rob?
Rob Doyle: Sure. Typically we would use metals other than silver as a byproduct credit for our costs of silver production. You know, our financial statements, any gold revenues would be incorporated in our revenue line. But when we come to calculating our cash and total costs of silver, the gold revenue would be utilized as a byproduct credit in the same way that our zinc, for instance, and our base metal production is used to offset our costs.
Ross Beaty: The only difference at Manantial, really is that it’s about 50/50 gold/silver. So it’s really a co-product, so we may, you know, we may account for it using co-product accounting, but all things being equal, we do what we do with everything else we produce.
Adrian Day: OK, so it could be very low cost indeed.
Ross Beaty: Indeed.
Adrian Day: OK, thank you.
Operator: Thank you. Your next question is coming from David Mallalieu from BMO Nesbitt Burns.
David Mallalieu: With regards to San Vicente, you stated that that should be starting up in mid 2006 at 600 tons a day, I think you mentioned in the press release. So any, I, well, you’ve got ideas. What can we use in our modeling for costs or everything?
Ross Beaty: David, are you referring to the capital costs or are you referring to the operating costs?
David Mallalieu: Operating costs.
Ross Beaty: Operating costs. Yeah, I think you can use, safely use $3.00 to $3.25 an ounce, very safely. There is a byproduct, a zinc credit coming through there as well, but that’s a rule of thumb number that I’m very comfortable with.
David Mallalieu: OK, so if I make it even more basic, would you be bold enough to suggest what our costs per ton mining would be, in milling?
Geoff Burns: I think, I mean our all-in costs on a per tonne basis are going to be in the low $30 number per tonne. I mean, as a, we’re in around 42/43 as you know, in Peru, but Bolivia is, in the nicest sense, that much cheaper for us to operate in, and this is a pretty good mine in terms of its ground conditions, so it’s in the low $30 is where we think we’re going to end up there.
David Mallalieu: OK. And one of the, you won’t be the only people dealing with this, but, I mean, this is, is this going to be set up as US dollars or, I mean, how is this going to be, can you control your costs in that its Bolivian currency?
Ross Beaty: We, actually, at this stage we haven’t looked at, in detail, the, first of all, the capital investment is very, going to be very limited. This is not a big number going in. Secondly, the Bolivian currency has traditionally tracked the US dollar as close as any currency globally. It’s a very, very close tie to the US dollar for a whole bunch of reasons.
David Mallalieu: OK. So just keep it as a US dollar mine, then?
Ross Beaty: Keep it as a US dollar mine, yeah. Yeah, and even, to some degree, Mexico and Peru are also very, you know, relatively speaking, have traditionally tracked the US dollar very closely. They have very strong economic ties to the US. It just so happens in the last few years there’s been a, somewhat of an appreciation, about a 15% appreciation in both currencies against the dollar. It’s quite unusual, but it’s the way it’s been.
David Mallalieu: OK, I’ll leave you be. Thanks.
Ross Beaty: Our pleasure, Dave.
Operator: Thank you. Your next question is coming from Steve Butler from Canaccord Capital.
Steve Butler: I just wanted to ask you guys a question about average metal prices. You know, of course you don’t quote your absolute unless you have silver. You may have quoted your silver realized price, but given the gyration that, on the upward basis, we, actually we had zinc pull back a bit, no, flattish in the third. Basically, the question is, if you could tell us your average realized prices for zinc, lead and copper. Or, if you don’t, were there any favorable or unfavorable adjustments to revenues for concentrate settlements?
Rob Doyle: Steve, Rob Doyle here. I’m afraid I don’t have those to hand. We do calculate our realized prices in zinc. It’s low. It’s in the average price that you see in every quarter here because of the impact of our hedge book in zinc where we’ve locked in prices when they were at lower levels. But for the other metals, we actually, in fact, in silver we, in the third quarter we actually, we allowed slightly better than the average prices, and in lead it was very much in line with the average prices. So typically it’s only when, in the metals, where we have a hedge program, which in this case is solely in zinc, where we might vary greatly from the average.
Steve Butler: OK, so concentrate delivery timing and settlements is not a big factor then, Rob?
Rob Doyle: It certainly can be. You know, it can be positive or negative, more times than not it’s slightly negative, of course. But, you know, typically it all comes out in the wash.
Steve Butler: And Geoff, any, could you say anything about trends in costs per tonne? Any joy you’ve had as you’ve progressed throughout the year Q1, Q2 to Q3? Are there any particular operation, perhaps, have you had any benefits for productivities which you’ve alluded to, if you could maybe quantify some of those for us?
Geoff Burns: Yeah, Steve, we haven’t had a lot of joy on the absolute dollars that we’ve been spending. As we, Ross referred to, we’ve been fighting the little bit higher exchange rates. We’ve certainly been fighting higher energy costs and higher consumer costs across the board for steel and other consumables. So, on an absolute dollar basis, you know, we haven’t seen much improvement. Certainly, at Morococha, as we ramp up our production levels, we’re going to see some benefit in our unit cost there. I think we started the year, you know, at, sort of, 42-43,000 tons per month at Morococha and we’ve been getting to the 45-46,000 tonne level mining wise. We’re stockpiling some of that as we refurbish the mill. So we’re going to see some benefits there. At Quiruvilca and Huaron, no, we’re not seeing a lot of joy on the units. We’re $42, $43, and that’s, with all the fight we have in us that’s where I think we’re going to be.
Steve Butler: OK. Thank you.
Operator: Thank you. Your next question is coming from David Mallalieu from BMO Nesbitt Burns.
David Mallalieu: Sorry. La Colorada, what would be the size of the stockpile in tonnage by the time you start the processing from that?
Geoff Burns: At La Colorada, are you talking the sulfide project there, David?
David Mallalieu: Yeah.
Ross Beaty: Somewhere in the neighborhood of 10 to 15,000 tons.
Operator: Thank you. There are no other questions.
Ross Beaty: OK, well that’s great. Well, thank you very much for joining us today and don’t hesitate to call us if you have any specific questions that we haven’t answered today, and thank you all once again and we’ll close the call now. Thank you.
|
