Alamos Gold Inc (AGI) 2010 Q4 法說會逐字稿

Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Gammon Gold fourth-quarter and year-end 2010 results 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 session. (Operator Instructions).

Rene Marion, President and CEO, you may begin your conference.

Well, thank you, operator, and good morning, ladies and gentlemen.

Before we start the call, I would like to refer our listeners to Gammon's forward-looking statements on Slide 2.

Moving ahead to the next slide, joining me today are Scott Perry, Gammon's CFO, Russell Tremayne, Gammon's COO, Anne Day, Director of IR. I am also joined by Colin Benner, Chairman of the Board, as well as other directors who are here for our regularly scheduled Board meeting.

I will present an update to our operations and Scott will present an overview of the fourth-quarter financial results. I would like to note that the presentation that we are using is available on our website and accessible via webcast. As the operator said, we will follow this with a Q&A session.

Going over the slide with Q4 consolidated numbers, I would like to start off by saying that our press release yesterday, for comparative reasons, used a gold-silver ratio of 55-to-1. Today, we will be largely using a realized ratio of 50-to-1 for the quarter.

Q4 was a record quarter for Gammon and the culmination of consecutive improvements in our quarterly performance throughout 2010. These records were the result of a lot of hard work that was put in, particularly by the team at Ocampo.

Total revenues for the quarter were a record $71 million. Net earnings of $23.5 million, or $0.17 a share, were the best ever results, or a 72% improvement year-over-year. Earnings before other items was $25.1 million or $0.18 a share. That is a 17% improvement year-over-year.

Ocampo itself contributed $33.6 million to net earnings before other items, representing a 51% improvement year-over-year. Cash flow from operations remained very strong at $35.6 million, or $0.26 a share, a 13% improvement year-over-year.

Particularly, Ocampo contributed $42 million. That is more than the $40 million we said in our January press release. That is $0.30 a share or a 20% improvement year-over-year.

Utilizing the realized gold-silver ratio in the quarter, Ocampo's cash costs were $411 for every single ounce of the 53,000 gold equivalent ounces produced. Supported by a gold price of $1381, that resulted in our best-ever margin of $970 per gold equivalent ounce, or 70%. Taking silver as a byproduct credit to our 29,000 ounces of gold produced, our cash costs would have come in at negative $388 per ounce, or a margin approaching $1800 per ounce, or a 128% margin. There are not many companies out there that can say they mine 29,000 ounces in a quarter with a margin of $1800.

Remember, these results were driven by just Ocampo. As you know, we will be bringing our second line, El Cubo, back into production later this year.

Moving to the next slide, I would like to look at a few metrics. Those numbers I just went through for Q4 were at a gold-to-silver ratio of 50-to-1. This morning, it is 38-to-1. If March were to average 40-to-1, Q1 will have a 45-to-1 gold-silver ratio. Those earnings in the fourth quarter reported today would be 13% higher on net earnings, 9% higher on operating cash flow, 44% higher on net free cash flow, and total cash costs would be down 5%, or $390 an ounce. But at today's gold-silver ratio assuming 40-to-1, those earnings would be 29% higher, the operating cash flow 19% higher, the net free cash flow 100% higher, and total cash costs down 10.5%, or $370 an ounce. That really shows the leverage to silver.

We have seen a 33% strengthening of the gold-silver ratio from October 1 last year when it was 60-to-1 to 38-to-1 this morning. We are truly a unique company, a company leveraged heavily to gold and silver prices. With the strengthening of silver as it is right now in this [gold] market, we envision continued improvements in all of these metrics throughout this year.

The 2010 highlights -- remember, El Cubo was shut down for much of this year. El Cubo will contribute to Gammon's results in the second half of this year. Importantly, we expect the performance to exceed historic performance on productivity and a cost basis, largely because of this new collective agreement that we have in place now. In addition, we will see increasing contributions from Santa Eduviges at Ocampo.

For the full year, we had record revenues of approximately $240 million, a 15% improvement. Earnings before other items of $60 million, or $0.44 a share, is not only our best-ever annual result but 120% higher than 2009.

Operating cash flow of $98 million or $0.70 a share was at 25% (technical difficulty) over 2009. Ocampo on its own contributed $90 million to earnings, or $0.65 a share, 65% improvement year-over-year.

Ocampo also contributed $116 million, or $0.84 a share, to our operating cash flow. That is a 33% improvement year-over-year. Our record margins for the full year on the 196,000 gold equivalent ounces was $750 an ounce.

Moving over to Ocampo's operational highlights, you know, it is really our key asset. Quarter-over-quarter improvements are pretty clear on this slide, showing the operational optimization on the right-hand side and these improvements in mining, open-pit and underground, and processing, Heap Leach and mill. They all flowed through to generate the excellent results that you see on the left-hand side.

On the open-pit side, open pits exceeded targeted levels with Q4 averaging 106,000 tons per day. Current mining is taking place in three of our open pits, Estrella, Conico, and Picacho. We have accelerated, in the latter part of December and into this year, the prestripping on Phase 1 at the Picacho pit. We also completed the road through Plaza de Gallos, which reduces the ore haulage time by 30% from the Picacho pit.

On the underground, mining commenced in Santa Eduviges in December. Underground continues to exceed our targeted levels of 1500 times a day. In fact, in January and February, we have averaged 1,877 tons a day with March to date to the 22nd 1,980 tons a day.

We also had an excellent year with the accelerated underground development averaging 2,400 meters a month in the fourth quarter. We did 22,400 meters of development in the underground operations in 2010. That is a 48% improvement year-over-year. We have identified several new veins in the Northeast zone to bring up the total of known reserve veins to 27. In Santa Eduviges, we have moved from one vein to a total of six veins now.

The mill is operating essentially at targeted levels. We continue to see month-over-month improvements in silver recovery. The redundancy program embarked on in late 2009 is complete. We commissioned the fourth filter in January of this year. With the increased contributions of higher grade or from the northeast underground and the commissioning of Santa Eduviges, we anticipate the performance of our processing plant to continue to improve.

With the steepening of the main loads in the Picacho pit, management made a decision to move to Phase 1 stripping, as I mentioned earlier, and move production in the short term to Conico and Estrella in Q1. The Heap Leach tonnage is down during the first quarter, lower than Q4, but that will increase in the second quarter of this year.

But the redesign of the Heap Leach pad last year is performing extremely well and in fact right along our leach curve. And we are on target for completing our second year of the accelerated stripping program at Picacho. By the end of 2011, we will have a fleet of loading equipment, haulage equipment, and drilling equipment become available.

So as I have always mentioned, the cash flow, or the main engine room of Ocampo, is first and foremost the underground followed by the mill feed from the open pit where we continue to see growing productivity levels that will continue to underpin our strong cash cost structure and margins going forward.

Over to reserves, we started 2010 by saying this is our inaugural year of exploration, so don't expect us to replace mining completion. Well, come September last year, we said that we could do a lot better than that. We had 12 diamond drill rigs on-site during the fourth quarter. So when we did reserves in February and released them, I have to note that was -- that they were run at a 27% discount to today's gold price, and a 50% discount to today's silver price. But the drilling program still added 460,000 gold equivalent ounces to reserves at a discovery cost of $49 an ounce. This is important because the Metals Economic Group in 2009 estimated global discovery costs for all categories of reserves and resources average $72 an ounce.

We also added 238,000 gold equivalent ounces to the measure and indicated resources at gold and silver prices at significant discounts to today's metal environment. In fact, the total 741,000 gold equivalent ounces measured and indicated are economic today, and if we are there, we will be mining them and we will be processing them. So expect us to be mining outside of reserves in 2011.

Over to Ocampo. We saw significant additions -- 398,000 gold equivalent ounces, an increase of 20% before mining depletion. Of that amount, 280,000 gold equivalent ounces were underground. That is a 45% increase to those reserves.

In the open pit, we added to most of the open pits along the south wall, adding 120,000 gold equivalent ounces, or an increase of 9%. We also added an additional 184,000 gold equivalent ounces to the measured and indicated, which is an 84% increase for a total of 403,000 gold equivalent ounces.

Now, I would like to point out that these are all high-quality ounces. Out of the entire portfolio of 460,000 gold equivalent ounces, 27,000 of those ounces where in the Heap Leach. Only 30,000 ounces were added below last year's cutoff grade that falls into this year's cutoff grade in the underground. So only 60,000 ounces were actually added due to metal price.

Now, I would like to go over to some animated slides, if you don't mind. Starting with Slide 9, here what we see is the mill, the crusher and the Heap Leach. Of particular note, up on the left-hand side, you will see a black dotted line showing a box of the area that we are going to focus in on. It represents less than 40% of our land position at the Ocampo operation.

Moving on, the Heap Leach and mill are highlighted here. We will take a look at what the Heap Leach looks like on the next set of photos. On the left-hand side, you can see the Heap Leach at a year and a bit ago, which clearly was the pond in the foreground and the grasshoppers going up the face. With the changes that we did last year in commissioning later in the year, you see on the right-hand side much larger available space for stacking. In fact, we took a capital expansion program that was due to be done in 2009 and have fully deferred it to 2013. We now have an additional 10 million tons of storage capacity on the Heap Leach.

Moving over to the mill, we completed the redundancy program -- additional thickening, additional leaching capacity, automation. This is a photo of our fourth filter. This fourth filter provides us 33% redundancy on the filtering plant. This is important because now we actually can do preventive maintenance without affecting throughput in processing facilities.

Now, I would like to move on to the next slide. We see here in the top right-hand side the northeast underground area approximately two years ago. It had six veins. Two kilometers to the south is the PGR Trend, our five open pits.

If you go to the next slide, you can see clearly, in the PGR Trend, we have connected all the open pits together. That is what is reducing the haulage from Picacho by 30% to the main crushing plant.

Moving on to the northeast underground, we have successfully converted from cut-and-fill to long-haul, and in fact are mining long-haul down to 0.7 meters.

Dilution remains between 13% and 18%, averaging 15% as per our reserves. In fact, 90% of our production is long-haul now.

Going back to the plan view, you can see in the top right-hand side the northeast underground has quadrupled in size. It is moving northwest, northeast, east, southeast and due south.

Moving on, we had a new discovery late last year that ties into the PGR Trend. That is called Altagracia. We defined three new vein structures and we are finding, with our drilling, that this connects up with Belen. And so now what you're looking at is the northeast underground going 2 kilometers south and tying into the open pits.

Moving on, we can see here the five target areas for 2011. We have got 13 veins targeted in these areas. They are targeting up in the northwest down to the southwest, Altagracia, and onward to the southeast.

Then comes in Santa Eduviges on the next slide. Santa Eduviges was approved by the Board of Directors last year to be put into commercial production based on only one vein. As you can see here, it has only undercut 20% of the open pits thus far, but it is headed northwest, southeast, and will tie into the Altagracia complex. Essentially, you will see the Northeast zone being three kilometers north-south tying into the open pits, which are going east-west for 4 kilometers underpinned by Santa Eduviges.

Tying into the next isometric view is the Board of Directors approved the development of Santa Eduviges based on the one vein that is highlighted in yellow here. We had two drills throughout the year last year drilling off this vein while we concurrently developed. We identified five new veins. In fact, the one on the left-hand side goes all the way up to the open pit. We discovered that through our hang-wall drilling that was drilling the main yellow vein. So we are currently working on new mine plans to look at is there expansion possibilities on Santa Eduviges beyond the 500 tons a day that we gave as guidance last year?

Moving on, you'll see in the addition onto this plan view level II. This is attacking four new discoveries that we made last year. In fact, the surface drilling found these veins were quite pervasive, and we drilled them at a 25 meter spacing. But it is 500 meters above the northeast underground. So we came in off the main access road at the halfway point and then split these veins into an upper 250 meters, and a lower 250 meters. This is being accessed by what we call level II. We are currently drilling these new discoveries from underground, and we will be adding an additional second drill later in the quarter. It is our hope that we are able to define a mine plan in this area and in fact commission our third underground mine at the end of this year, therefore providing additional high-grade mill feed in 2012.

Back to the open pits. As I mentioned, we added 120,000 gold equivalent ounces to the open pits all along primarily the PGR Trend. We discovered last year Las Molinas which is in behind the mill.

If I go on to the next slide, you see the other six open pit targets for this year. We ran an optimization on Picacho just recently, letting them see what the Altagracia would impact. What we see is Picacho actually wants to take out the top part of Altagracia and in fact go north now up into Belen. So the lower Altagracia is a priority target and we are currently drilling that.

Also around the hillside is our number two priority open-pit target, which is Santa Librada. Finding as we working northwest on our drilling program, it looks like it may become more and more amenable to open pitting.

Then we've got four more open-pit targets for 2011. The important thing in all these is they all lie less than 5 kilometers by road to our main infrastructure, the crushing plant, the Heap Leach and the mill. We totally anticipate 2011 to be another excellent year on reserve and resource replacement.

So with that, I would like to pass it over to Scott Perry, our Chief Financial Officer.

Thank you. Good morning ladies and gentlemen.

Just referencing Slide 25, first and foremost, I just want to quickly highlight the consolidated production and cash cost results for the Company in 2010. It's important to note when reviewing these results that this incorporates our 100% owned assets, both Ocampo and El Cubo.

As you can see in the table on the left-hand side of the slide, we had good robust gold production performance and silver performance quarter-over-quarter during the calendar year. In 2010, in total, we actually produced 114,000 ounces of pure gold and just shy of 5 million ounces of silver. One of the aspects you heard Rene referencing is the significant silver stream that we do have within our business model and the favorable optionality or leverage that gives us in today's robust metal price environment.

In terms of our cash cost performance, for the full calendar year, we produced the 204,000 gold equivalent ounces at a cash cost of $459 per ounce. It is important to note that this included El Cubo, which was slightly higher cost during the first half of the year, prior to operations being suspended. If we back out El Cubo, Ocampo's performance actually came in at $423 per ounce for the full calendar year. As you can see by the bottom road there, in terms of our realized gold prices and realized silver prices, we favorably participated in the record metal price environment. We are fully unhedged on both our gold and silver, and so again this year we realized record margins on both metals.

Referencing the charts on the right-hand side of the slide, you can see, in terms of Ocampo, which is our cornerstone flagship operation, the performance that we are seeing there continues to stabilize and grow quarter-over-quarter. 2009 was a heavy investment year in terms of the various expansionary initiatives that we put in place. You can really see the benefits starting to flow through to the bottom line in terms of metal production, cash cost performance, but also in terms of underlying profitability.

Looking at the chart on the top right-hand quadrant, you can see quarter-over-quarter our pure gold production has been growing and likewise in the bottom right-hand quadrant, in terms of that silver stream that I referenced, quarter-over-quarter we have been producing more silver from the Ocampo operation.

Moving on to the next slide, Slide 26, just to cover off on the consolidated financial results and just focusing on some of the key financial metrics, again just referencing -- we did realize record metal prices in 2010. On every ounce of gold, we averaged a realized margin of $1302 per gold ounce. That is taking our silver stream as a byproduct. Conversely, if we looked at ourselves as just a silver producer and took the gold revenue as a byproduct, we are actually realizing a cash flow margin of $29 per silver ounce.

In the bottom left-hand quadrant there, we have a chart just illustrating the last two years in terms of our cash cost performance and our realized cash margins. What it shows is that essentially quarter-over-quarter the margins that we have been realizing have been outperforming the prior quarter or the prior corresponding year results. So we continue to see growing margins. This is obviously a result of the record metal price environment that we are currently operating in. As I mentioned and I want to stress, we are fully unhedged, so we are fully participating in this environment.

But also in terms of costs, which are illustrated by the dark blue color in these columns, you can see that, period-over-period, we are stabilizing and maintaining our cost performance, and in some quarters, particularly in the most recent quarters, we are actually aggressively driving down these costs.

Coming back to the bullet points on the right-hand side, in terms of the various financial headline metrics, it was again a record year for the Company. It was actually a record quarter, which I will cover off on shortly. In terms of headline earnings before other items, we came in with an earnings contribution of $60.3 million, which is a 120% increase year-over-year.

In terms of our net earnings, our net earnings before the El Cubo carrying value impairment adjustment was $45.8 million, which actually represents a four-fold increase over the prior-year corresponding period.

In terms of operating cash flow, it was a record annual result that came in with operating cash flow of a positive $97.6 million, which again represents a 25% increase over the prior-year corresponding period.

In terms of balance sheet, key highlights to note was during the year we announced that we had restructured our credit facility. It now has a potential expanded capacity up to $100 million. And also in terms of our year-end available cash reserves, we finished the year with $113 million in available cash.

Moving on to the next slide on Slide 27, just to focus on the Company's quarterly performance. It was a record, banner quarter for the Company in terms of financial performance. In terms of earnings before other items, underlying profitability there was $25.1 million. This represents $0.18 per share, which compares to $0.16 per share in the prior-year corresponding period.

In terms of net earnings, we came in with the result of $23.5 million, which represents $0.17 per share, compared to $0.11 per share in the prior-year corresponding period.

In terms of operating cash flow, the consolidated Company generated operating cash flow of $35.6 million or approximately $0.26 per share. Net free cash flow was a positive $7.1 million and, again, just highlighting that it was record realized margins. If we take our silver as a byproduct, we realized a cash flow margin of $1769 per gold ounce. In terms of silver we recognized a margin of actually $42 per silver ounce, taking the gold revenues as a byproduct.

Again, in terms of available liquidity, we finished with very strong cash reserves. We've got the new expanded credit facility in place. Our -- the available liquidity in the Company was $161 million in terms of available cash. This compares favorably to the prior-year corresponding period as well.

So it was really a quarter of record financial performance but again, I just want to reiterate what Rene said in his opening remarks. That is the strong leverage or torque that we have to the current robust silver price environment. As you saw in one of my slides, we produced approximately 5 million ounces of silver in calendar year 2010. This obviously places us in very good stead as we go forward into 2011 in terms of the likely financial performance that we can expect to see.

If we go to the next slide, Slide 28 -- underpinning the solid results that we are reporting here today for both calendar year 2010 and also for the fourth quarter is our cornerstone asset Ocampo. This really is an asset that represents and embeds a significant precious metals cash flow.

In terms of the production performance and the cash cost performance, just referencing the slides on the right-hand side here of Slide 28, you can see, in terms of just pure gold production, quarter-over-quarter is seeing increased metal output in terms of pure gold. In terms of the cash cost per ounce in that Gold, which is illustrated by the line chart -- and here we are taking the silver as a byproduct -- you can see quarter-over-quarter those margins are growing significantly which, again, is due to that advantageous silver stream that we have within the Company and our unhedged profile.

In terms of gold equivalent production, this is the chart in the bottom right-hand quadrant. Quarter-over-quarter, again, we are producing more gold equivalent production. In terms of the cash cost performance, you can see that we are maintaining our cash costs in the very low $400 per ounce, so being very aggressive in terms of managing costs and maintaining margins. That is obviously benefiting us well in terms of underlying profitability and cash flow performance.

So just referencing the bullet points on the left -- and again, this is taking Ocampo in isolation. Ocampo during the fourth quarter, as Rene mentioned, generated just shy of $42 million in operating cash flow. For the full year, the Ocampo asset generated $116 million of positive operating cash flow.

In terms of Ocampo's earning before other items in Q4, earnings contribution there was $33.6 million. In terms of the full-year earnings before other items result, Ocampo generated a positive $89.6 million.

One of the interesting aspects to Ocampo is it does truly represent a pure precious metals production stream in terms of its gold component and its silver component. One of the things -- one of the aspects that I am illustrating here is what does that gold cost us on a coproduct basis and what does that silver cost us on a coproducts basis? So Ocampo, a headline result. During calendar year, it produced 104,000 gold (inaudible) announces at cash costs of $423 per ounce.

If we track out costs separately in terms of costs associated with the gold stream and costs associated with the silver stream, looking at gold, we produced 103,000 ounces of gold at a cash cost of $338 per gold ounce. Then in terms of the silver component, Ocampo generated 4.4 million ounces of silver at a cash cost of $9.64 per silver ounce. So, I hope this really does just demonstrate and illustrate the great optionality that we have in the Ocampo asset and the leverage that does provide us in today's robust silver landscape.

Just moving on to the next slide, Slide 29, this is the last slide in terms of the financial highlights. I just want to cover off on the calendar year's cash flow performance. What we use are utilizing here to illustrate, this is a waterflow chart, and so I'm just going to talk to the various items moving from the left to the right.

So as you can see on the very left, we commenced the year with $129 million in available cash. Ocampo, being our cornerstone asset, generated $66 million of positive net cash flow.

In terms of additional sources of cash, we had some options that were exercised being in-the-money. That generated an additional $8.4 million of cash. Then what we are illustrating here in terms of the red decrement is how we have appropriated those funds during the year.

As we have announced earlier during the year, El Cubo was suspended temporarily. The asset -- we have since resolved that labor disruption, and we are now making plans in terms of starting up that asset in the coming months. But El Cubo consumed cash of $10.5 million during the calendar year.

In terms of G&A expense, taxes, interest expense, and other ancillary items, cash utilization there was $35 million. Then there were some debt repayments on our capital lease facilities off $4.4 million. If we look at the subtotal there, that leaves us with what could have been an available cash balance of $153 million. One of the things that you have seen in terms of Gammon Gold and this management team is, philosophically, we are very aggressive on reinvesting back into the business.

You can see these two remaining red decrements here just illustrate the discretionary strategic investments that we made during the calendar year. So during the year, we invested $29.4 million in our exploration program, particularly focusing on expanding the reserves and resources at our existing operations. We also made two public company vehicle investments, which represented an investment of $10.8 million.

Post those strategic investments, we finished the year with $113 million in cash. But just looking at those strategic investments and what value we have derived, in terms of the exploration investment, as Rene spoke to, that identified Company-wide new reserves of approximately 0.5 million ounces, which has an embedded revenue of approximately $700 million.

In terms of the public company vehicle investments that we have made, they have increased 93% in value as of year-end. So, that $10 million investment is now valued at approximately $20 million.

I think the key take-away here though, as I had mentioned in preceding slides, is the Company enjoys record cash availability of $161 million. That really positions us in great stead, especially in today's very strong robust metal price environment, in terms of growing our business model into 2011 and moving forward.

So with that, I will conclude the financial highlights, and I will pass you back to our President and CEO, Mr. Rene Marion.

Thanks, Scott. Moving on to Slide 30 -- or 31 -- just some key milestones of 2010. When the management team here started back in 2008, totally recognize that the key three value drivers to making it a high-performance company is production, operating cash flow, and reserves. Well, I would like to look at this slide and say a lot of the things that we embarked on in late 2008 got completed in 2010.

Under our operational excellence, we have had quarter-over-quarter improvements at Ocampo. No redundancy program got completed. The conversion of the heap leach got -- was done. We ramped up underground well beyond our initial targets. Last year, we added to reserves. We also completed the new collective agreement with the El Cubo employees.

Our land position in the Ocampo district grew by 30%. We've got the [striked] extensions of Pinos Altos and [Conchenya] operations. We advance Guadalupe y Calvo and will be coming out this coming quarter with our PEA.

We also picked up Mezquite, [Frilay], and La Bandera and improved our land position throughout the key historical areas in Mexico by 90% Company-wide.

We brought on new directories. We appointed a board advisor, strengthened the management team and the operating team, and renegotiated a credit -- line of credit -- for up to $100 million.

We improved safety throughout the Company, and now have a very robust life-of-mine plan and budgeting process.

With that, I would like to pass it over to Colin Benner, Chairman of the Board of Directors.

Thanks, Rene. Good morning, ladies and gentlemen. I will keep my comments reasonably brief, because I'm sure there's a lot of you out there that have questions you want to ask of our executive.

While it is not customary for a nonexecutive chairman to participate in calls of this nature, I and my fellow Board members thought it important that I join the call and pass on some remarks on behalf of the Board.

Myself and our three new directories to the Company and some of the older directors -- and I don't mean that in terms of tenure in life but tenure in service on the Gammon Board -- Richard Colterjohn, Joe Spiteri and Alan Edwards and myself clearly understood before joining Gammon that the Company has been, or perhaps better said was independently [boxed] for a number of good but nevertheless historical reasons. Nonetheless, we saw and still see the potential in the Company. While it had its share of challenges, it possessed and still possesses a new, young management team committed to turning the Company around and building a formidable precious metals mining company.

Let me just summarize our views. The Company's portfolio of assets are sound and in a desired jurisdiction in Mexico. The Company has a technically and financially astute management team supported by what we believe to be an accomplished Board of Directors whose expertise covers all facets of its business and includes as well an extremely capable advisor and Ambassador Martha Lara, who joined us last year.

Yesterday's and today's Q4 releases, which Scott had me talking about (inaudible) press release on the Company's performance is a strong statement and testament to recent successes and demonstrates the ability of the new Gammon for greater success in the future.

For all investors, both past and potentially new, who have not looked at Gammon in some time, the Board strongly recommend that you take another look.

(inaudible) at Ocampo is performing well, as Rene has said and as witnessed by the quarter-over-quarter improvements in 2010. Rene has also mentioned the increasing reserve base and resource base. We have a strong balance sheet and are generating free cash flow. We have, as I already mentioned, a new and highly experienced Board and an energized management team. I would stress we are not afraid to take tough decisions for the benefit of their shareholders. (inaudible) restart will turn Gammon into a diversified producer once again and on a reduced cost basis.

The Company has expanded its portfolio of attractive development and exploration opportunities, which Rene has taken you through in detail, and this will provide exciting organic growth. As Scott had mentioned, we have full exposure to gold and silver production.

It does not seem to be widely understood yet within the investment community that Gammon in reality is a new company. I truly hope that my few remarks this morning will highlight that this is a new and competitive producer that delivers results.

I am personally very excited about what we have accomplished in the past 12 months, and I would emphasize, as Board members, what the team under the Rene Marion has accomplished in the last ten months and has been a culmination of perhaps two to three years of work by a number of people contributing on the team. I'm equally as excited about our future prospects, which we believe are outstanding. On this, I know that I speak for our entire Board.

Thank you for the opportunity to speak and I will turn it back over to you, Rene.

Thank you. In conclusion, going to last slide, Ocampo continues to perform as we stated. We will continue adding to reserves and lengthening the mine life, both open-pit and underground. I have to emphasize it is not one underground operation anymore. It is likely to be three by the end of the year.

El Cubo will be back in production. The team returned to work after their two weeks of training and moved underground on Tuesday. They are currently doing some ground support, where required, and we anticipate starting development activities in the coming weeks. We, obviously have exceptional leverage in both gold and silver, which makes us quite unique. Our exploration efforts continue to follow up on all our success.

Now, we are advancing the Guadalupe y Calvo scoping study. By the time it was completed, we had already done an additional eight months of drilling and, unfortunately, the mining rate for the underground component of it was too low, so we are currently updating the PEA and will release that in the second quarter.

Now, I really encourage everybody to refresh your view on the Company on moving forward.

Now, many may ask why we are not providing guidance for 2011. Well, management and the Board were decisive in saying let's focus on getting a positive transaction concluded by April 1 and then we will come out with our guidance which will incorporate Ocampo, El Cubo, and Chanate. So, I appreciate everybody's patience, but we will be coming out with that guidance in the coming weeks.

With that, I would like to pass it back to the operator to open it up for Q&A.

(Operator Instructions). Brian Christie, Desjardins Securities.

I guess this will be mostly all for Scott. I wonder if you can remind us, on the Company investments, Scott, that you alluded to and then give us G&A for 2011, the effective tax rate, and a shot at the depreciation for the year as well.

In terms of the two public company investments, as I mentioned, we invested $10.7 million. The majority of that investment was in Golden Queen. That was approximately a $7.5 million investment that we took -- took place in 2010. The second investment was Corex Gold.

In terms of G&A, during Q4 -- referencing my quarterly schedules here -- G&A during the fourth quarter was $8.3 million. Your next question on tax expense in terms of the effective tax rate, one of the things you would have noted during Q4 is that Q4 is always a true-up quarter when it comes to tax provisioning. When it comes to Q1 tax expense, Q2, Q3, it is largely an estimate. It is not until the fourth quarter that you can do all your reconciliations and truly adjust to what your year-end tax position is. Once we completed that reconciliation, we ascertained that our tax provisioning during the first nine months of the year was higher than what was required. So you are seeing a lower tax expense during the fourth quarter to effectively true it up to what is the true position.

In terms of -- you asked about an effective tax rate. In terms of an effective tax rate going forward, what we are seeing from a profit and loss modeling point of view is you'd be safe assuming around 25%. In terms of cash flow taxes in Mexico, as we speak we are currently paying under the flat tax regime, which is 17.5% for flat taxes.

For Ocampo, the key asset in terms of amortization, depletion, depreciation expense, I think you would be safe to assume a non-cash cost per ounce that is similar to what you saw in 2010, just bearing in mind that we did have those significant additions to reserves during the year that would delineate it, offset by the fact that the production from the underground mines is ramping up significantly, producing more and more a metal from the underground, which does accelerate the amortization rate on any capital assets associated with the underground.

That is a long answer, but I would essentially model it as per what you saw in 2010.

So G&A then, what you're suggesting is 8.3% a pretty good quarterly run rate for 2011?

No, I would actually say no. One of the key reasons for that is you see some anomalies in terms of stock-based compensation expense quarter over quarter. But more particularly is the fact that we are involved in a transaction at the moment, so we are incurring what I would argue is a higher rate in terms of legal fees and associated consultant fees and advisory expenses.

So to give you guidance, I would be comfortable assuming $5 million to $5.5 million per quarter, assuming that there was no underlying transaction underway.

David Haughton, BMO Capital Markets.

Good morning and thank you for the update. Rene, interested to see your underground mining rate approaching that 2000 tons a day kind of level. Part of it, as I understand it, was the redeployment of the El Cubo equipment whilst that operation was down. With El Cubo starting back up again later this year and the equipment moving back, would you expect to see any adverse impact on Ocampo?

No, not at all. By the end of the year, all the El Cubo equipment was put on standby and kept up over surface. It was just stored. So the 2400 meters a month that you saw in the fourth quarter is solely with our people and not using any of the equipment. In fact, when I take a look at in the last ten days, having sent that equipment back to El Cubo, development rates remain quite high. So it is strictly our own people now.

Okay, so you've now got into a position where you've got the development ahead of your current mining. Are you going to keep that kind of development ahead of mining to give yourself the kind of flexibility that we have seen over the last few quarters?

Absolutely. It is a game of remaining flexible at all times. The number of headings that we've got have increased tremendously. But that is solely why month-to-date, for example, we are doing 1800 tons a day out of the Northeast zone and ramping up to 160, 180 tons a day in Santa Eduviges. So we will keep the aggressive development program. There is a significant component that is also exploration as well, for example level II that I showed on the slide. So we are going to continue on the high development rates for the years to come.

In your discussion, I just missed where you had indicated on that map that third mine, underground mine, could be. Could you just remind me where that was?

It's -- you will see the drifts on the northwest side of the Northeast zone at the top, behind the mill [post to] Las Molinas.

Okay, so that is the level II in other words?

That is level II. It basically takes a 500 meter vertical bip and cut it in half. So Russell's team is working from the Northeast zone on the bottom 250 meters. Then this is a separate crew up on the level II area.

Does the ore hole go through your Northeast underground infrastructure, or is there a separate access?

Currently, it comes out to level II and we have a dump area there.

Right, it does carry all the way down to the Northeast infrastructure so call it 500 vertical meters.

We are busy putting in ore patches and ventilation [raises] so they will connect it up completely to the main mine, but retaining a separate entrance.

Okay. Just shifting a little bit but sticking to this map, quite a few new open-pit and underground targets. Do you need to go through any special permitting to bring them onstream?

The underground ones not at all. On the open-pit side, we've got surface rights to Altagracia, to Santa Librada and up to be a northwest -- the furthest northwest one we've got surface rights there and we're drilling on all of those. You do have to have surface rights to put in a drill road. Our team headed under Luis Chavez continually works on making sure that we've got all the surface permits necessary.

Assuming exploration success there, what kind of timing would you see for bringing on those new pits?

Well, currently, the open pits are key. It all depends on what grade you find in these open pits. We are comfortable with six years ahead of ourselves on mill feed from the current five open pits to the mill, Obviously. There's about nine to ten years of heap leach material.

But if one of these, for example, lower Altagracia, if our drilling continues to be as successful as it is right now, we might phase that into Picacho sooner than later because it has access to the mine through Picacho. Santa Librada, if it ends up being a strong robust target, we might bring it in earlier. Russell and his team are putting in a haulage road or an access road from Picacho around the hill site to Santa Librada as we speak. So we do that in the life-of-mine process of prioritizing assets.

All right. How would you characterize this? Would these potential new open pits be extension of life or are you seeing better grade to improve the output, bring it forward, in other words?

We would look at both. Obviously, the mill is expandable to a large degree, and we would always consider that. And the heap leach is expandable. So we might be doing -- considering both. With that respect, like I said earlier, our accelerated stripping program is done this year. We've got, if I recall correctly, five trucks, one drill, and one loader coming free at the end of the year where we have to decide where is it best deployed.

With regard to the mill, where do you see the throughput for 2011? Would we be looking at 3200 to 3300 tons or getting up to 3400? What would be your expectation?

Well, we do have a grinding consultant coming in next month to work with our team, but without assuming any further optimizations that he will come up with, we are assuming between 3200 and 3300.

What kind of contribution would the underground have of that? Would it be in excess of 2000 tons a day?

Our current plan, which we will be disclosing with you in the coming weeks, is showing the underground going north of 2000 tons a day.

If you got that third underground going, what would you see it moving to potentially?

That one is a tough one. Obviously, Russell is keen on getting 3300 tons a day in the mill, but we are 12 months ahead of ourselves on that one. We've got to finish off drilling Santa Eduviges throughout this year, and level II. But all I can say is that this month, as an example, at 1980 tons a day from both Santa Eduviges and the Northeast zone, the split is about 1850 from the Northeast zone, when our target is actually 1500. So it is pretty dynamic. It is -- we will have a better idea. At the end of the year, we will make an assessment based on what we see at Santa Eduviges, Northeast zone, and level II, on whether or not we should be expanding the mill to 4400 tons a day in 2012.

All right, well, thank you, Rene, and thanks, Russell, for your contribution there too.

Anita Soni, Credit Suisse.

Can I get -- could you give me a break out of the CapEx that was spent? How much of that was on (inaudible) and how much do you expect (technical difficulty)?

It's Scott. In terms of stripping costs in calendar year 2010, it was approximately $27 million.

For capitalized stripping?

Capitalized stripping on open-pit operations, yes.

Then how much do you expect for 2011?

2011 is about the same. It is finishing Phase 1, which is a key area. Then over at Estrella, we have extended the pit so there will be prestripping on that going to the northwest, and then that is done. (multiple speakers).

Sorry, could you also break out the rest of the $107 million that you spent this year? I guess the remaining $80 million, how did you spend that in terms of CapEx?

Okay, so at a high level, in terms of greenfield exploration, $2.5 million. In terms of brownfield exploration, $11 million. In terms of reserves, drilling exploration was $16 million. In terms of predominately Ocampo, that it also included El Cubo in terms of underground development, $14.5 million. Open-pit stripping that I referenced was $27 million and then other property, plant and equipment, et cetera, was approximately $35 million. That is Company-wide, all of those numbers.

And so the property, plant and equipment, what kinds of things where you doing there? Replacing truck fleets and things like that?

Yes. The two main items was major spare parts and equipment overhaul enhancements -- was approximately $12 million. We also purchased additional land, which is part of that categorization. In terms of those land acquisitions, which is predominately around Ocampo, that was around $4.2 million. Then it is just a whole series of smaller items like the additional filter that Rene spoke about, some drills, some leach pad construction costs during the first half of the year. But they are really the two key items.

Sure, okay. Then just on the open-pit, can you give us a little bit of an idea on how much you will be mining as a ton per day for 2011 and also what is going on to the heap leach pad for 2011?

Yes, we will be coming out in the second week of April with the guidance. On a tons per day, we always budget at 100,000 tons a day ore and waste. What we will find, obviously, if we are mining 106,000, we are accelerating that strip on Phase 1 which is always a good thing.

As I mentioned, Q1 we will be lower on the heap leach pad than Q4 and then it will go right back up in the second quarter and hold constant then. That is really a function of one phase I stripping is on (inaudible).

Yes, I think I talked to Scott off-line about that. But there is a great variance between what the component parts of the 100,000 could be. Right? I mean, should we assume [what] the strip rate that you had over the last year were around the 8 to 9 mark?

Yes, with the capital strip, and the 8 to 9 that we did last year is because we did higher mining (technical difficulty) than our target. So that is good for now and then we can comment really when we come out with our guidance for the year. We will make sure that it is all mapped out for you.

Okay. Then just again with respect to the underground, what kind of a mining rate would you expect on the underground?

Our public target is still 2000 tons a day, which is 1500 from the Northeast zone and 500 from Santa Eduviges. We will come up with a revised target during that analyst day. But we have already exceeded the Northeast zone and Santa Eduviges is one level away on getting into the core area of that yellow vein that you saw on the isometric drawing where we've got widths of 5 to 10 meters in grades as high as 15 gram a ton. So the productivity at Santa Eduviges will start improving once we get down to that next drill horizon. So all I can say is that we are outperforming the Northeast zone and we're right on schedule with Santa Eduviges, so I would anticipate something north of 2000.

Okay. Sorry. Can you remind me does the Northeast zone -- what are the grades there?

The grades in the Northeast zone are approximately 2. -- sorry I am just pulling it up -- about 2.7 gram a ton and 130 gram a ton. When I take a look at where we are at on the mining performance, we were essentially there in the last quarter at those grades. If I look at January/February, we're exactly on reserve grades.

Okay, thank you very much.

With that, I would like to conclude the conference call. If we haven't had a chance to answer any questions, please e-mail Anne and we will get back to you promptly. Unfortunately, we have a Board meeting scheduled in one minute, and we have to maintain our schedule. So thank you very much, everybody, for joining us.

Thank you. This concludes today's conference call. You may now disconnect.