Alamos Gold Inc (AGI) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Gammon Gold third quarter results conference call. At this time all participants are in listen-only mode. Following the presentation we will conduct a question and answer session. Instructions will be provided at that time to queue up for questions. (Operator Instructions) I would like to remind everyone that this conference call is being recorded today, Thursday, November 12, 2009, at 10 a.m. Eastern Time.

I will now turn the conference over to Rene Marion, President and Chief Executive Officer. Please go ahead.

Thank you, operator. I would like to welcome everybody to the Gammon Gold third quarter conference call and webcast. First of all I would like to open up by saying I am joined here today by Scott Perry, our Chief Financial Officer, and Russell Tremayne, our Chief Operating Officer. And before we start, I would like to refer listeners to the forward-looking statements included in our press release. Now onto our Q3 highlights. First of all on financial. It was our eighth quarter of positive operating cash flow of $13.9 million or 96% improvement from Q3 2008. Earnings of $0.05 a share prior to foreign exchange losses and severance costs associated with the changes to the executive management team that was announced last quarter. And closed the quarter with a cash position of $12.3 million or $9 million or 273% increase since December 31, 2008. Net debt improved by $8.6 million from $35.2 million on December 31, 2008, to $26.6 million.

We also completed subsequent to the quarter the offering of 12.9 million shares at $8.90 US for proceeds of net $109 million. This is a strongest ever balance sheet the Company has ever had with a debt to equity ratio of 5.95, well below the industry average. And we also recently announced the revised credit facility to a $30 million revolver with BNS that may be upgraded to $50 million any time over the two year term. On the operational front, at Ocampo we completed the Phase III mill expansion and we are currently fine tuning the gind -- grinding metrics to opti -- optimize silver recoveries. We have full access to 20 megawatts of grid power. Lower cost power is -- is already being reflected in our current cash costs. We're seeing already a $30 announced reduction in those costs and there are further opportunities for peak rate savings. The optimization of the Ocampo heap leach is ongoing and we've increased the capacity by an additional 10 million-tons for only a cost of $1.5 million.

The heap leach stacking rates increased late in September to 9,000-tons a day and we are targeting up to 12,000-tons a day by the end of the year. In fact, month to date in November, including a shutdown on November 1, we're averaging about 10,500. If I exclude that shutdown we are about 11,300 tons per day and things are going quite well. On the underground ramp up it is going quite well and we are well on our way on reaching 1,200-tons a day by year-end. In November month to date we're averaging slightly less than 1,100-tons a day. The pit continues to perform near the 100,000-ton per day range. The mill has been hitting plus 3,200-tons a day and subsequent to a mill re-line this month, we anticipate falling within 3,300 to 3,400-tons a day by the end of year. And costs are coming down. And in fact in October we have seen cost reductions of over 20% from Q3 costs.

At El Cubo, we resumed work at El Cubo throughout the quarter and ramped up taking full advantage of our seven day work week. At the end of the Q3 we're at our pre-strike levels. And in October we averaged over 1,750-tons a day or 8% higher than the first quarter. And costs continue to decrease throughout October. At a corporate level, overall consolidated costs in October are on target. Our production for Q4 through October is on target. On October 13th our Chairman, Fred George, retired at a cost of $8.4 million associated with his retirement and has been expensed in Q3. Board member Canek Rangel resigned on September 22nd as well, eliminating all related priority transactions and establishing a majority independent board. Ron Smith has been appointed as Interim Chairman, as we -- as the governance and nominating committee are identifying potential new independent members and are recruiting through a third party a new independent Chairman. And the executive offices will be established in Toronto by year-end.

In closing the corporate level, we renewed the Penoles lease agreement for an additional three year term. 2009 was a year focused on bedding down our assets and expanding and future growth. Our capital is forecasted for the full year at $68 million for 2009. The reason it is slightly higher than our $65 million forecast is simply pre-stripping at the Picacho pit at Ocampo is well ahead of schedule. In fact, where we stand currently we're within 40-meters of ore. The Ocampo mill expansion was more than doubled the name plate capacity and we're well on our way on completing our 123-kilometer exploration program at Ocampo. And we launched in September a 40,000 to 45,000 meter exploration program at El Cubo. The Ocampo capital expansion program is essentially complete and it was all internally funded. And in 2010 you'll see a focus on growth through accelerating exploration at Ocampo, Guadalupe y Calvo and at El Cubo. So let's look at the Q3 consolidated results.

They were impacted by the ramp up of the underground at Ocampo, two months behind schedule as previously discussed, higher portion of the open pit ore had to be sent to the mill as a result of the backlog underground, and we're also adversely affected by the gold-to-silver ratio, which was 64 to 1 versus 59 to 1 for the same period in 2008. And El Cubo is still ramping up to normalized production and we were phasing in our workforce and redeploying our equipment throughout Q3. At Ocampo -- back to Ocampo, in spite of the lower production, we saw a 40% decrease in total cash costs in gold equivalent ounces. At 55 to 1 normalizing year-over-year, it was actually a 42% decrease. So we have made excellent progress on our cash cost front. Ocampo underground, we embarked on a seven month underground development program. We reconfigured the majority of the stopes from cut and fill to long hole.

We now have eight working stopes, six long hole, two cut and fill, with an additional nine long hole stopes planned for early Q4. Also in Q4 we deployed two now long hole drills on-site and they are fully manned and in operation. Lateral development now is led by the Company, eliminating all contractors and productivities have improved throughout the year by 220%, completing over 11.5-kilometers year-to-date of development. Currently have approximately six months of developed inventory or 245,000-tons, with a target by year-end of some 345,000-tons or nine months of production. We're increasing the portion of underground ore feed to the mill and as we increase our stoping tonnage, our grades are coming closer and closer to reserve grades. In Santa Eduviges we've made great progress thus far this year in identifying a potential second underground mine.

Other initiatives throughout the quarter is lunch at the face, simply encouraging our employees through an association with a local community, on brown bagging and going to the face directly. On the open pit Q3 was a record 8.9 million-tons or 96,000-tons per day, a 35% improvement over the same period last year. And the open pit tons per day remained strong. And as I mentioned earlier, allows -- has allowed us to accelerate the pre-stripping at the Picacho pit pit. And the operating strip ratio this quarter reduced from 6.4 to 1 in Q3, '08 down to 1.84 to 1 in Q3 '09. The mill, as I mentioned earlier, Phase III was commissioned and we are just fine tuning the grinding and leach kinetics. During Q3 the mill availability was 82% and was impacted for tieing in all the new equipment in connection to the main power grid. And throughout Q4 we anticipate higher grades as the underground ramps up and the portion of open pit ore to the mill goes down and as a result a continued improvement in metallurgical recoveries.

And the good thing is as of yesterday, we sit here with 17,000 tons of over three gram a ton ahead of the mill. And on the heap leach, during the quarter we averaged just over 6,000 tons per day and in October we averaged 9,100 and this month we're averaging already 11,000 tons per day. With the ramp up in tonnage to the heap leach, we have ceased wasting the lower grade ores from the open pit and are sending that directly run up mine to the heap leach pad. In Q4 2008, we intentionally reduced the stocking rate to conserve capital, but now with the new design that gives us an additional 10,000 -- 10 million-tons storage capacity, we are aggressively increasing the stacking rate and our cost structure is going down along with that. On top of that we do have almost 320,000-tons sitting ahead of the crusher ready to go to the heap leach.

On the Ocampo exploration front, we have completed 88,000 meters or 72% of our drilling program to the end of September. 82% of the drilling in the open pits has been already completed and 56% of the Northeast underground area drilling program has also been completed. At Santa Eduviges we're quite excited and we've done quite a bit of development and drilling thus far this year and in fact, due to the success of this drilling program we have added another 250-meters of additional development and 6,000-meters of additional diamond drilling to be completed this year in 2009. This really represents an opportunity to develop our second underground mine and therefore revisit the processing capacity by the end of next year. And the reason for this is the widths are quite wide and appear to be amenable to high productive low cost mining.

On top of that, with the portal being -- being located quite close to the primary crusher and with the added being driven 5-meter by 5-meter, we believe we can bring in our surface articulated trucks to main -- to ensure that it could be high productivity. On our grassroots exploration program, we have been focusing on the Picacho southeast extension, Altagracia, Las Molinas, Santa Mado, Belen, Santa Enis and we've released quite a few of the drill results in our MD&A. Santa Mado is of particular interest, especially when we look at the hanging wall split in Le Leona and it is open in three directions. And we released some of the holes there that are showing spectacular grades. We do have two surface drills that are drilling the top 200-meters of Santa Mado working up the hill site. With the underground development along the vein and along the hanging wall, we anticipate to start drilling from underground by the end of this year.

And there has been significant new mineralization discovered at Las Molinas open pit target. That's located north of the mill facility. We've drilled 14 holes thus far, 13 of the 14 were positive, and we're currently doing our in-fill drilling. And finally, we have had significant new mineralization discoveries at Altagracia. At El Cubo, well, obviously Q3 was a return to work quarter. We returned to work on June 21st, phasing our workforce back over several weeks, moving our underground equipment back from surface to underground and slowly ramping up to normalized production levels by the end of the quarter. In fact, 142,000-tons in Q3 was consistent with the same quarter in 2008. Now with the seven day work week well in hand, we're seeing the higher productivities, as I mentioned, of over 1,750-tons a day thus far this month.

We've also renegotiated a new bonus system that is more commensurate to an individual's performance, piecemeal bonus system that also is not capped out, and we anticipate over the coming quarters to see continued improvement in productivities. I alluded earlier that we launched an exploration program at El Cubo during the end of the third quarter. We initiated over a 40,000, 45,000 meter drilling program at the end of September and our focus initially has been on the Delores southeast extension in the Capulin structure where six of the initial nine holes have come back quite positive and in fact hole 478 come back at 5.3-meters at 9.6-grams gold equivalent or more spectacularly hole 481 Capulin that is upwards to 28.8-meters wide at 3 gram a ton. Currently have two drills on-site and we're in discussion on doubling that in the next few months.

At Guadeloupe El Calvo set of extreme geochem anomalies have been identified to the Northwest in a 200-meter wide stock work. We also registered in the quarter an additional 36,000 hectares of new land to the Northwest. We've identified a 300 by 800-meter zone and with the covenant being removed from our -- our loan, we will now be able to accelerate our program throughout 2010. Generally our strategy in 2010 will be even more aggressively attacking our exploration at all three of our sites, currently finishing our budgeting process and we'll be sharing that with everybody in the new year. With that I would like to pass it off to Scott for an overview on the financials during the quarter. Scott.

Okay, thank you, Rene. The headline earnings results for the third quarter was a aftertax loss of $7.02 million versus a loss of $3.5 million in the prior year corresponding period. It should be noted, though, that within this earnings loss is nonrecurring severance related costs of 8.4 million and a noncash foreign exchange translation loss of $4.5 million. When we adjust our earnings result by adding back these charges, the adjusted earnings result was a positive $5.7 million or $0.05 per share, which compares favorably to the prior year corresponding period adjusted result of a negative $8.7 million or $0.07 per share. Some of the key highlights in reviewing the earnings result. Despite lower metal production revenues of $47.9 million were essentially in line with the third quarter of 2008, which is largely due to this year's stronger metal price environment in which the Company, obviously, fully participates given our 100% unhedged position on both our gold and silver revenue streams.

In terms of realie pri -- in terms of realized prices, on gold we realized an average price of $971 per ounce, which is 13.5% higher than the $855 per ounce realized price in the prior year corresponding period. And likewise on silver we realized a price of $15.15 per ounce, which compares favorably to the $14.46 per ounce realized price last year. Production costs were some $18.6 million lower than the prior year corresponding period, which is reflected in the stronger quarterly cash cost per ounce result of $500 per ounce. This is versus a result of $757 per ounce in the prior year corresponding period. This is a significant reduction of up to 34% and is largely attributable to the devaluation in the Mexican peso this year versus last year's average exchange rates, also in terms of improved productivities and cost efficiencies, especially so at the Ocampo mill processing facility where we're now leveraging the benefit of the Phase III mill expansion and this is also being favorably impacted by our full 100% connection to the cheaper and more reliable electrical power grid network.

In addition to this, we should note that last year's result also included a $100 per ounce mark-to-market inventory charge associated with revaluing the Ocampo heap leach inventory -- inventory due to the weaker metal price environment that we saw in the third quarter of last year. In terms of general and administrative costs, year-over-year these costs increased by $5.7 million and it should be noted that in this quarter's expense we have $8.4 million of severance related costs, which are related to the retirement of the Company's prior Chairman and President, Mr. Fred George. These severance related costs of $8.4 million comprise $7.2 million for the actual severance payment and an additional $1.2 million in noncash share based compensation expense, which is associated with the immediate vesting of held options.

These expenses are obviously a nonrecurring item and going forward the Company is highly confident and expecting significantly lower G&A costs relative to the current year-to-date G&A cost structure. As mentioned earlier, our Q3 result contain a noncash foreign exchange loss of $4.5 million. This is associated with the non -- this is a noncash accounting translation number that's largely associated with translating our non-US dollar denominated assets and liabilities and this compares to the prior year result, which was a foreign exchange gain of $5.3 million. In terms of taxes, our total tax expense for the quarter was some $5.7 million higher than the prior year tax recovery and this largely reflects higher profitability at our Mexican subsidiary this year given the stronger metal price environment and the movement in exchange rates that we have seen this year.

Again, as I mentioned earlier, I think the key metric, when we assess the business' quarterly performance in terms of earnings, is we typically look at earnings adjusted for the one off severance expense and we also back out foreign exchange losses. When we do adjust our earnings in this way, the adjusted result is a five -- positive $5.7 million and again, that compares favorably to the adjusted earnings result last year which was a negative $8.7 million. From a cash flow perspective the Company's third quarter results continue to illustrate a significant turnaround, with this most recent quarterly result marking our eighth consecutive quarter of reporting positive cash flow from operations. And this is really what I would point to first in terms of evaluating how we have managed to self fund close to $120 million in various capital investment programs in the last seven quarters.

Our third quarter operating cash flow result was a positive $13.9 million, which is just under 100% improvement over the prior year corresponding result of $7.1 million and is predominantly due to the decrease in our cash cost per ounce structure versus the prior year corresponding period. Capital expenditures in the third quarter were $18.5 million which compares to $17.4 million in the prior year period. Key capital expenditures this quarter were largely associated with ongoing stripping activities at the Ocampo open pit operations, underground run of mine development and drilling expenditures and also the final upgrade costs associated with completing the Phase III mill expansion at the Ocampo operation. As a result of the improved cash flow profiles, the Company finished the quarter with a cash balance of $12.3 million, which is a $9 million increase in cash on hand since December 31, 2008.

Also as a result net debt levels within the Company improved in the first nine months of this year by $8.6 million such that our current net debt metric is $26.6 million at the end of the third quarter. Two notable subsequent events that have favorably positioned our business model, firstly on October 22nd of this year the Company completed a $115 million public offering that resulted in net proceeds of $109 million. Proceeds that will be used for funding expanding -- expanded exploration programs at the Ocampo and El Cubo mine sites, the advancement of the Guadeloupe y Calvo project, greenfield exploration, enhancing our working capital position and also for other general corporate purposes. This equity financing, together with our strength in cash flows, has significantly strengthened the Company's balance sleet, which really now cements our firm's ability to continue operating from a position of strength and also ensuring that we'll be safe guarded against any future turmoil in worldwide capital markets.

The second key subsequent event of note was that on November 9th we announced that we had restructured and replaced our prior syndicated credit facility with a new standalone two-year US $30 million revolving line of credit facility that will be offered 100% through the Bank of Nova Scotia. This credit facility restructuring has enhanced the Company's cash flow profile even further, as this restructuring has removed the need for any future principle amortization repayments, as the only required repayment now being a standard bullet payment on the date of maturity in two years from now. This facility has an embedded option where by we can increase the size of the facility to $50 million at any time in the next 24 months provided that the Bank of Nova Scotia's exposure does not exceed $30 million.

These two subsequent events really have financially re-engineered the Company's financial foundation such that we are now in a better position than ever before to aggressively accelerate a number of key growth opportunities in terms of our enhanced exploration program at Ocampo and El Cubo, as well as the advancement of our Guadeloupe property. In closing, and I guess reiterating Rene's opening remarks, this year has been a year not only focused on bedding down assets but also on expansion and future growth opportunities. With the majority of our capital expansion program essentially complete, I do believe that we'll quickly see the benefits of a number of these investments coming to fruition in our fourth quarter results, which will likely be one of our highest production quarters yet.

And it is with this kind of augmented operation performance that we can confidently anticipate operating cash flows will continue to be more than sufficient to fund the Company's day-to-day working capital requirements. That really concludes my brief finance overview. So with that said, I would now like to pass the discussion back to Rene Marion, our President and CEO, for Rene's closing remarks. Thank you, Scott. Good summary. With that I'd actually like to pass it over to the operator for -- to open up the Q&A.

(Operator Instructions) Your first question today comes from Tony Lesiak with Genuity Capital Markets. Please go ahead.

Good morning. Just a question on the mill recoveries. It looks like you're back up into the 93% range on the gold side. Silver seems to be a bit lacking still in the 77% range. Where do you think you might get to once you've optimized the mill?

Tony, it is Rene. The mill is currently at 95% and it is doing quite well. The goal itself is not grind sensitive, silver is. Yes, indeed, we're in the mid-70s in -- in Q3. What we're working on right now is fine tuning the grinding and we are targeting in the 82% to 84% by the end of the year.

Okay. Is that where we should be running it longer term?

That's where we're keeping it in our internal plans, so, yes, I would suggest so.

Okay. And on the heap leach side, can you talk about your recoveries? I haven't done the math yet, but can you talk about the recoveries currently and where you might see them over the coming years?

Yes. One thing we did change and we didn't mention is that prior to mid-year only about 6,000 tons per day could go through the tertiary crushing plant and the rest had to be only secondary crushing. And the modifications that Russell and the team made is now 100% of the fee going to the heap leaches tertiary crush. Where our long-term model shows is that gold recoveries remain consistent on the low 80s on gold recovery that we had -- BMS had a consultant out on-site to check our -- the performance of our heap leach. Silver looks like it is in the low 70s and consistent. We do get variations that are seasonal, Tony. One, obviously, is the rainy season, but two, the winter months and I would say December/January you get slower kinetics and they may pick up in kind of March/April where you get abnormally high recoveries. So it is kind of strange when you look at it, but net on the -- on the leach curve those low 80s and low 70s are pretty good for gold and silver.

Okay. And where were they in the third quarter?

I don't have that offhand, sorry.

I haven't done the math yet. I can do that. In terms of the Mexican peso, obviously, helping you out here, can you give us the sensitivities to your cost structures, maybe on, even on a per ton basis for maybe a 10% move in the peso?

Yes. I will comment first of all that basically we're probably about 60% peso denominated. And let's say for a one change, let's say from 3.2 where it is today to a 13.2 peso to a 12.2 would be approximately $20 an ounce.

$20 per ounce. Great. Thanks very much.

You're welcome, Tony.

Your next question comes from David Haughton with BMO capital markets. Please go ahead.

Good morning, Rene, Scott, Russell, Ann. Got a question for you with regard to forthcoming downtime at both the mill and the heap leach. Rene, in your introductory talk you had mentioned some time and I am just wondering what your expectation is for that downtime in the fourth quarter and what we might expect availability going into 2010?

Yes. David, it is Rene. On the heap leach it was just two-thirds of a day at the beginning of the month to slice a new conveyer on the over land one, I think it was. On the mill it is basically a two-day shutdown for a total realign on the rod mill and ball mill number one and we don't envision any other major downtimes between now and the end of the year. At the same time as the re-line Russell's team did work on number one and number two filter. Russell, do you want to comment on some of the other work that you did in the last two days?

Yes. We've relined the shoots, which feed the Rob mill. We put new seals on the ball mill. We went right through all the pumps and we did all the electrics. We just did about everything we could think to do while we were doing the realigning. We brought in extra troops and now we're pretty -- we're pretty pleased with the results and the mill started up like a dream. She's running at 140-tons an hour at the moment.

Okay. Changing to a different mind. El Cubo, what do you see as the normalized production rate? Are we looking here at about 1,800-tons a day or could you get up to the 2,000-tons a day kind of mark going forward?

Well, the the whole reason for locking out the union was to try to close it down to the last tortice capacity over the next five quarters of 2,000 tons a day. It was encouraging to see where we got to in October and month to date in November. And we honestly believe that with the new bonus system that we have rolled out with the union that we'll see that gap close in by the end of next year.

Okay. So 2,000-tons a day is still a realistic expectation for 2010.

Not as the overall average for the year, you'd probably be in the 1,800 for the weighted average.

Okay. All right. And also during your introductory comments you were talking about potential new underground. Can you just explain that a little bit more, please?

Certainly. At Santa Eduviges we had two drills and during the third quarter and moved in a development crew and we're seeing widths of upwards of 5 to 9-meters with grades that are fairly nice. Can't -- I don't have the hole in front of me, but the 5-meter hole is booked 14.5-gram a ton gold equivalent, the 9-meter hole is 5-gram. So we'd added a third drill and we have got the 250-meters moving laterally. And if you take a look at the last road show presentation, there is a level plan you can see where we're targeting on the development and new drilling. And really what we're doing is trying to accelerate in Q4 and Q1 so that we can delineate a minable resource for development in the second half of next year. So really it is quite an aggressive program, even trying to do 6,000 more meters underground in -- in two and-a-half, three months is pretty aggressive, but thus far we're very encouraged with what we have seen. And the interesting thing is you have got to remember is the open pits only carry down to just below 1,900-meters and this drift is quite a ways below it at around the 1,700 level. So we got 200-meters above us to the pits and then open that depth. We current underground on the Northeast zone is below -- approaching 1,500-meters above sea level, so there is quite a window there, 500-meters that we have got to drill off.

Okay. And you envisioning potential for a separate portal?

It is a separate portal. It comes out totally on the opposite side of the mountain. It comes out right at the crushers, about 150-meters away from the crusher and because we have got the -- the 40-ton articulated trucks, the small surface trucks, we drove the decline into it and potentially large enough for those trucks.

All right. And -- and I presume earlier in the new year you might have something more concrete for us to think about for modeling purposes?

Yes. We'll have definitely a -- a resource model on Santa Eduviges to give you an idea of what potential that it has. So we're trying to get this drilling done and then put our wire frames on Chris Bostwick and the team are taking care of that.

And the way that you're thinking about this, would it justify a further expansion of the mill or would it just displace lower grade pit material, do you think?

Conceptually, what we're -- it is early days, but conceptually we would probably want to expand the mill further. The grinding and crushing circuit is not the bottleneck. We would convert ourrod mill to a ball mill and the thoughts are we could do north of 4,000, 5,000-tons a day through that part of it. It is obviously the CCD thickeners, gold room, marlecrow and filters that need to be addressed. So the steps that we'll take is that we'll get an update on what we think it could possibly do by mid-year next year and then decide on the processing facility thereafter.

All right. Final area that I have got a question on is probably for Scott and it relates to depreciation. Now that you've completed Phase III, just trying to wonder what you're going forward depreciation rate should be at Ocampo and while you're thinking about that what we should also have for El Cubo?

To be honest, David, we're not seeing a lot of variance in terms of -- what we typically look at in terms of the metric on our internal reports is the noncash cost charges per ounce of production. And really if you just take what we have averaged in the last six months or even the year-to-date period, you would be pretty safe just extrapolating that going forward in terms of populating a model and what have you. The only caveat I would have, obviously, is a significantly large portion of that asset base is driven off our underlying reserves, so depending on what you're issuing for reserve inventory going forward. But I am not seeing a lot of -- a lot of reasons for any variance, such as our year-to-date run rate per ounce.

All right. I just thought that perhaps some of the expenditure for Phase III and various other bits and pieces might have come in now that that's complete.

David, the Phase -- the capital associated with Phase III was under $1 million US, very small capital, with total capital for the three phases was, I think, $5.1 million, so it is generally insignificant in this sort of thing.

Just to give you -- it's Rene. Just to give you an idea between drilling and exploration development, that was $4.6 million in the third quarter and pre-stripping was $7.7 million, so the lion's share of capital at Ocampo was related to those two things.

All right. Well, thank you very much, guys.

You're welcome.

Your next question comes from Steven Green with TD Securities. Please go ahead.

Yes, good morning, everybody. Quick question on, I guess this is for Scott. In your statement of cash flows in the investing section, you have a -- a proceeds on sale of property of $10 million. I assume that's another lease sale-back?

Correct, that was a capital lease transaction that we completed, yes.

Okay. And -- and -- so is -- is that just a sale of equipment to Caterpillar, similar to your previous one?

Yes, this is in addition to the previous one. This one was associated with Alteric's equipment fleet in the open pit operation and as you pointed out, it was just a standard capital lease transaction, lease facility, just three year facility. Cost of borrowings was close to 7% and, yes, as I said that's amortizing over a three year period, so that's what you have seen coming in there in the investing section as a -- as a credit.

Okay. And -- and I guess what is the -- the prior reason for -- for entering into those transactions?

In Q3 it was just about ensuring that we're always operating from a position of strength. I think if you would look at everything we have done this year, made some good pro -- really good progress in terms of turning around operations and what have you, but one area that we were also critiquing ourselves on was our balance sheet. Never had a strong balance in terms of cash reserves, so we just wanted to make sure we're always shoring up the balance sheet.

Right. Okay. Good. Thanks. And I guess my other question is in relation to more operating and in relation to the underground, I think -- I think Rene mentioned that you're up to about 1,200-tons per day in the underground. What can we expect, including any downtime, of an average for Q4?

This month we're averaging 1,100. Russell is still targeting 1,200 by the end of the year, so I would assume taking, well, 850, 900 as a weighted average for the -- I am guessing, but 850, 900. Russell, do you have anything?

I would agree. Just under the 1,000.

Okay. Great. And then going into next year you would expect that to be above 1,000?

Yes. In Q1 we should be in the 1,250 to 1,350 as an average and probably 1400,1450 as an average Q2 and then steady state 1,500 thereon.

Okay. Great. Good. That's all I had. Thanks, guys.

Your next question comes from Dan Rollins with UBS Securities. Please go ahead.

Good morning. A couple of questions on exploration. One just on the Santa Mado, the exploration drift. How far are you -- how far have you taken that now and when can we expect you to really start drilling off the underground there?

Dan, it is Rene. We just gotten in. We're driving two drives on the Santa Mado. One is on the vein and the other one is in the hanging wall, using the hanging wall drill stations to drill off up and down. We're probably going to be December sometime before we can actually get the drills in there and they'll follow the development heading going along. So best way to conceptually think of this -- that drift, by the way, has to be 600-meters, so it is going to take us awhile. So think about the top 200-meters being drilled from surface to an indicated level by sometime mid-Q1 and then the underground will take most of next year to drill.

Okay. And then so conceptually if everything pans out there with the grades, given the grades are fairly good there, you're probably looking mid-2011 starting to underground there or at least accessing some stopes in that area?

Unfortunately, I know Russell too well. He will start mining before we get it into reserves. (laughter)

Well, I didn't mind.

Okay. And then just on Guadeloupe y Calvo, what's the -- what's the plan of attack for that now? Because you were delayed this year given the, sort of the balance sheet issues, but now that you have -- you got your finances in order, how quickly do you want to see this get into, say, to scoping the feasibility and sort of what is -- what is the timeline we can sort of look for for key catalyst for that development project?

I definitely want it into our long-term strategic plan by the end of next year. What we're going to be doing, and in fact this is what we're doing today and tomorrow, is going through the budgets on the exploration development side. Chris Bostwick will be relocating to Toronto as our Senior Vice President of Tech Services. A good portion of his efforts this year will be to complete the scoping study on Guadeloupe. P Drobeck and their team, they've got an awful lot of field work to do, obviously, with that much -- that large of a land package. They'll be drilling. Right now the underground portion itself is only drilled to inferred, so we have got some drilling to do there and he's establishing drill targets. You'll see a fairly substantial budget in 2010 for Guadeloupe, but all to really to position ourselves into, from a scoping standpoint, do you have a standalone project there as it stands right now. We will do our baseline for ESIA this year, and then we'll be looking at the upside beyond that.

Okay. So -- so by the end of next year you'll have a scoping and then we'll have maybe a little bit more of a conceptual idea how -- how it is going to go together with the starter open pit and then the underground?

Exactly.

Okay. And then just last question on the credit facility. You've mentioned in the MD&A that it could potentially be brought up to $50 million if Scotia only goes to 30. How many different parties are you currently talking to on maybe that additional $20 million?

Yes, hi, Dan, it is Scott. Currently we're in pretty advanced discussions with just one party.

Okay. Is -- is that a new party or is that a previous party you have talked to in the past, if that can be disclosed?

That would be a new party.

Okay. Well, thanks. That's all I have. Thanks very much.

Your next question comes from Anita Sony with Credit Suisse. Please go ahead.

My question was just a follow-up. I missed how long the downtime was in Q4. Could you tell me that again?

The mill was two days, Anita.

Two days. Okay. Thank you. That's it.

Okay.

Mr. Marion, we have no further questions at this time. Please continue.

Okay, thank you, operator. Well, in closing I would like to say it has been an interesting seven quarters in the organization. I do believe we put together a stellar team that can begin delivering. And I do believe that we'll be seeing quarter over quarter significant improvements, both in production and cash cost structure. And in fact, October was the first month that we were able to see that and so I am pretty -- pretty encouraged with the -- the progress made by the management team and the coming quarters ahead. And with that, it was really our disciplined financial management program that allowed us to get to this place where we're sitting here with the strongest balance sheet we have ever had and we're just about to capitalize on all the work that's been done. So with that I would like to thank everybody for joining us today and thanks, Scott and Russell.

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation. You may now disconnect your lines.