Alamos Gold Inc (AGI) 2012 Q4 法說會逐字稿

Good morning. My name is Kyle, and I will be your conference operator today. At this time, I'd like to welcome everyone to the AuRico Gold Inc. fourth-quarter and year-end results conference call. (operator instructions). Thank you. Ms. Day, you may begin your conference.

Great. Thank you, operator, and good morning, everyone. Thanks for joining us today for the AuRico Gold fourth-quarter and year-end earnings results conference call and webcast.

On the line today we have Scott Perry, our President and CEO; and Rob Chausse, our Chief Financial Officer, as well as others members of the senior management team, all of which will be on hand -- will be available during the Q&A period at the end of this call.

At the end of the presentation, the operator will provide instructions again for those who wish to ask questions. Should you wish to follow along via webcast, it is available on our home page at www.auricogold.com.

Before we begin, I will go through the abbreviated version of our forward-looking statements, which are also provided in the press release and today's presentation. Some of today's commentary may contain forward-looking information for AuRico. In this respect, we refer you to our detailed cautionary note regarding forward-looking statements in our press release and presentation. You are cautioned that actual results and future events could differ materially from their respective conclusions, forecasts or projections. We refer you to the section entitled Risk Factors in our latest MD&A and other filings available on SEDAR, which set out the material factors that would cause results to differ.

I will now turn the call over to Scott Perry, our CEO.

Thanks, Anne, and good morning, everyone. Thanks for joining us today. I'm just starting off on slide number four in terms of the presentation deck.

2012 was truly a transformational year for the Company as we completed the optimization of our asset base to focus on quality production and cash flow generation. We recently prereleased our Q4 production and cash cost results, and I want to reaffirm that we are very pleased and encouraged by the results that we reported from both of our assets.

Today we are reporting our 2012 full-year results, which is the final reporting obligation before we can report future results from just our two core assets without all this accounting noise for continued and discontinued operations.

Things have been very busy, and I know that I represent all of our employees when I put forth that we have never been so proud of AuRico today and how favorably we are positioned in what continues to be a very destructive metal price environment.

It's been an incredibly transformative phase for AuRico Gold. In 2011 we consummated two acquisitions that ultimately represent the varied operating asset base of today, being the El Chanate operation in Mexico and the Young-Davidson operation in Canada.

The most recent year, 2012, was an equally transformative year for AuRico, whereby our activities represented a disciplined strategy of trading up on asset quality. The key determinant that we consider in evaluating asset quality is North American jurisdiction, lower than industry average operating costs, organic production growth profiles and mine longevity. Against this criteria, we strongly believe that our core operations, Young-Davidson and El Chanate, present very well and are perfect fits to the organization.

In terms of announcing our Q4 production results in January, we have delivered on our commitments to shareholder-friendly initiatives, whereby we successfully completed our $300 million share buyback, which resulted in our outstanding share count being reduced by approximately 13%.

Thereafter, we announced our peer leading dividend policy to which we declared the first quarterly dividend yesterday. In 2013, the annual dividend has been set at $0.16 per share or approximately $0.04 per quarter. Beginning in 2014, we have linked dividend distributions to 20% of our operating cash flow.

As a result, all of our shareholders will be leveraged to our growing cash flow streams, which is primarily underpinned by the strong production growth profile from our cornerstone Young-Davidson asset.

Aftermarket yesterday, we also released our updated reserves and resources where the company reported a reserve base of 6.8 million gold ounces, which represents a 1.7 million ounce increase over 2011, which was attributable to reserve additions at the Kemess project.

Concurrent with our focus on quality production, we have adopted the same view for reserves, whereby our objective was quality of ounces as opposed to quantity of ounces. We held our cutoff grades constant year over year to ensure that our reserve base remains comprised of quality high-margin ounces.

We've also released a feasibility study for the Kemess underground project, a copper-gold porphyry located in northern British Columbia. The study enhances the option value of this asset and outlines the development of an underground block/panel cave operation with average annual production of 105,000 ounces of gold and 44 million pounds of copper at cash costs of $213 per ounce of gold net of buying product credits over a mine life of approximately 12 years.

As there is little to no value currently ascribed to this asset, we'll be focused on daylighting additional value here, whereby we'll continue to focus on initiatives that will further enhance the intrinsic value of this asset, such as permitting and exploration drilling outside of the current orebody. This mineral investment is expected to not only serve as additional value, but will also enhance the optionality of this asset moving forward.

In terms of our flagship asset, we are very proud of our Young-Davidson operation where the ramp-up continues to impress us all. Just recently, the Board and management were at Young-Davidson, and we continue to gain much confidence in the potential of this asset in what may represent one of the more successful project commissionings in recent times. All of the individual site unit operations are demonstrating great productivity, cost performance and ramp-up profiles that are in line with targeted expectations. The mid shaft crushing and hoisting system is progressing on schedule for commissioning in Q3 and will be the key catalyst in driving the Company's growing production profile and cash flow stream over the next few years.

The Board and management were equally impressed with the productivity progress in the underground mine. We are currently mining from our third and fourth stopes and are well exceeding the targeted 1000 tons per day for the quarter to date period.

The mill facility has commissioned extremely well, and this performance continues. Currently the mill is operating above its nameplate capacity such that we are well exceeding our targeted 6000 ton per day throughput rate.

I have to give credit to Peter MacPhail and the original Northgate Young-Davidson team. We at AuRico have been thoroughly impressed and are quite fortunate to have acquired such a talented operating team through the Northgate acquisition.

At our El Chanate mine, we have all three ADR plants operational, and production has returned to normal levels such that on an annualized basis, we are already operating in line with all of our targeted expectations.

Accounting wise, as part of our year-end impairment testing review, we have identified a non-cash impairment charge was required for the balance of goodwill associated with the El Chanate mine. Rob will discuss this further during his presentation, but it should be noted that this non-cash goodwill charge has no impact on budgeted life of mine production or cash flow profiles for the El Chanate operation. Although a revaluation to the goodwill balance was required, we still very much see El Chanate as a long-term asset, and our view of its long-term potential is not one bit diminished.

We continue to be impressed by the encouraging results from the recent exploration activity just outside of the current pit, and these were results that were not incorporated in the life of mine impairment model, yet they do speak to the prospective mine life potential.

We have also amended 2013 operating cash cost estimates for El Chanate following a review of our auditors of the impacts of the adoption of IFRIC 20. As a result of this pronouncement, we have increased operating cash cost estimates by $75 per ounce to $550 to $600 per ounce, which is due to a reclassification of some operating costs from capitalized stripping into the mining operating costs.

It has to be stressed that our previously guided all-in costs guidance of $900 to $1000 per ounce has not been impacted as this accounting requirement simply reallocates costs from sustaining capital expenditures to the traditional cash costs per ounce metric. As a result, there is no impact to the mine's cash flow profile due to this accounting reclassification.

Now before I turn the call over to Rob, I'd just like to take this opportunity to thank our Senior Vice President of Finance, Charlene Milner, for so confidently fulfilling the role of acting Chief Financial Officer in the lead-up to a recruiting role. AuRico truly is fortunate to have such depth within its management team.

With that, I'll now turn the call over to Rob Chausse, AuRico's Chief Financial Officer.

Thank you, Scott, and good morning.

Before I get started, I'd like to note that the information presented today only contains the results of our continuing operations unless otherwise noted.

As a reminder, our Australian operations were divested in the first quarter of 2012. El Cubo and Guadalupe y Calvo were divested in the third quarter of 2012 and the sale of Ocampo was closed on December 14, 2012. That leaves us with our two core assets, Young-Davidson and El Chanate.

Also, the divested assets have been presented as discontinued operations in the Company's financial statements.

Turning to our results on slide six, fourth-quarter revenue from continuing operations was $63 million, driven by sales of approximately 36,000 gold equivalent ounces at an average realized gold price of $1720 per ounce. Production for the fourth quarter, which includes preproduction ounces from YD or Young-Davidson was 41,000 ounces at a total cash cost of $628 per gold ounce.

Production and total cash costs were higher than Q4 of 2011, largely due to the startup of YD during Q3 2012.

Fourth-quarter adjusted operating cash flow was approximately $31 million or $0.11 per share. The Company recorded a net loss of approximately $134 million during Q4. Included in this loss is a non-cash goodwill impairment charge of $127 million. After adjusting for the goodwill impairment charge and other one-time charges that I will review in more detail shortly, net earnings were $13.7 million in Q4 compared to a loss of $7.4 million in the fourth quarter of 2011.

On a per-share basis, adjusted earnings increased to $0.05 per share.

With regards to the non-cash goodwill impairment charge, as part of the normal course year-end procedures, the Company is required to evaluate whether the carrying amounts of its cost generating units are recoverable. We prepared an updated life of mine plan that incorporated the results of the 2012 drilling and exploration program whereby the Company did not add resources or fully replace depletion -- 2012 depletion.

We have taken a conservative approach and only include proven and probable reserves in our cash flow model. In addition, the life of mine plan reflects revised operating and economic parameters. Although an impairment was required, we view El Chanate as a long-term asset, and our view of its long-term potential has not changed. We continue to be impressed by encouraging results from the recent exploration activity just outside of the current pit that were not incorporated in the cash flow model.

Moving to slide seven, for the full year, consolidated sales from continuing operations were approximately 94,000 gold ounces at an average realized price of $1690 per ounce. This, along with our silver sales, generated revenue of approximately $163 million, an increase over 2011 largely due to startup at Young-Davidson.

2012 production cost of sales was $516 per gold ounce compared to $449 per ounce in 2011. Adjusting operating cash flow for 2012 was approximately $39 million. On a per-share basis, adjusted cash flow was $0.14 per share. Adjusted net earnings for the full year were $34.7 million or $0.12 per share.

Full-year revenue production, total cost of sales, cash flow, and adjusted earnings for our continuing operations increased over 2011, primarily due to the startup at Young-Davidson combined with an additional three months of contribution from the El Chanate mine that we acquired early in April 2011.

Reported net loss for the full year, including the non-cash goodwill charge, is approximately $97.8 million or $0.34 per share. Capital expenditures were approximately $62 million for Q4, compared with $94 million in the fourth quarter of 2011, a decrease namely due to completing YD surface construction. Current capital expenditures for the full year were $370 million.

Moving to slide eight, the operational results on the next two slides include the results of our El Chanate and Young-Davidson mines in the current year and El Chanate mine only in the prior year. Young-Davidson produced 19,236 gold ounces in the fourth quarter. The mine also produced approximately 7000 preproduction gold ounces for a total of [26,363] gold ounces for the quarter. Young-Davidson realized cash costs of $744 per gold ounce during its first full commercial production quarter. El Chanate produced 14,782 gold ounces or 18% fewer ounces than in Q4 2011. Total cash costs at El Chanate were $468 per ounce in Q4 of this year, a 17% increase over Q4 last year. Fewer ounces are due to unplanned maintenance at the ADR plant and the total cash costs per ounce primarily impacted by a declining grade.

Combined, our core operations achieved cash costs of $620 per gold ounce in the fourth quarter of 2012.

Moving to slide nine, full-year Young-Davidson produced 29,000 ounces. The mine also produced 27,000 preproduction gold ounces for a total of approximately 56,000 gold ounces for the year. Young-Davidson realized cash costs of $708 per gold ounce during the first four months of operation. El Chanate produced 71,145 gold ounces or 44% more than 2011. Total cash costs at El Chanate were $434 per gold ounce in 2012, a 3% decrease over 2011. Combined, our core operations achieved cash costs of $516 per gold ounce in 2012.

Moving to the next slide, actually the next two slides provide a detailed reconciliation of adjusted earnings segregated between continued and discontinued operations for the quarter and the full year and when combined gives us the Companywide adjusted net earnings results for Q4 of $61 million or $0.22 per share. I'll focus on the continuing operations result, which is in the center column of the slide and speak to the significant adjustments.

As noted earlier, the reported net loss from continuing operations for Q4 was $134.4 million or $0.48 per share. The adjusted result adds back the unrealized loss of $6.1 million on the option component of convertible senior notes during Q4; the unrealized loss on investments of $17.8 million, which arose primarily from the decrease in the share price of Endeavour Silver; and the non-cash goodwill impairment at El Chanate of $127 million. The $6.6 million gain realized on the sale of the 50% interest in the Orion exploration property to Minera Frisco is deducted as well. After taking into account all the items noted on the schedule, the adjusted net earning result for Q4 is $13.7 million or $0.05 per share.

Moving to slide 11, the reported net loss from continuing operations for the full year was $97.8 million or $0.35 per share. The adjusted result deducts the unrealized gain on the option component of our convertible senior notes for the year, a $6.6 million gain realized on the sale of our [50%] interest in Orion, and adds back the non-cash goodwill impairment at El Chanate of $127 million and the unrealized foreign exchange losses recognized in 2012 of $10.7 million which were due to the strengthening of the Mexican peso and Canadian dollar. After taking into account all these items noted on the schedule, the adjusted net earnings result for the year is $34.7 million or $0.12 per share.

As of December 31, 2012, AuRico has approximately $450 million in liquidity after adjusting for the share buyback completed earlier this year. The balance consists of approximately $300 million in cash and cash equivalents and $150 million available in credit facilities.

Moving to slide 12, as Scott mentioned, the Company is revising its 2013 cash cost guidance as a result of applying a new accounting standard, IFRIC 20, which deals with the accounting for open pit stripping costs in a production phase. The application of the new standard impacts our closing 2012 carry forward balances, as well as the ongoing strip costs -- stripping cost allocation at El Chanate. The result is a shift of approximately $5 million of sustaining capital cash costs. Therefore, our total cash cost guidance at El Chanate for 2013 increases to a range of $550 to $600 per ounce. Our consolidated total cash cost guidance moves to a range of $565 to $645 per ounce. This change has no impact on our previously disclosed guidance for all-in costs at El Chanate of $900 to $1000 per ounce. Our primary focus is cash flow, and this change does not impact our ongoing cash flow.

Our consolidated effective tax rate for the fourth quarter and full year have been impacted by movements in FX, as well as divestitures during 2012. Going forward, our tax rate is expected to be in a range of 25% to 30%.

In closing, I want to reiterate our commitment to operating and free cash flow. While other performance metrics will be considered in the decision-making process, it will be primarily via the cash flow metrics that will determine our ongoing strategic behavior.

With that, I'll turn it over to Scott -- back to Scott.

Okay. Thanks, Rob. I think as you heard in my opening remarks and as this slide depicts, the AuRico of today is truly a transformed company. It's been a busy two years, and management is very proud of what we have achieved. We've traded up on the overall quality of the Company's asset base, in which doing so we had monetized some $1 billion or more for a series of divested non-core assets. We now have an asset base that comprises two Tier 1 producing assets, both of which are domiciled in North America, that present very well in the world industry cost curve.

Our streamlined asset base has a compelling organic growth profile over the next four to five years, and we've got attractive mine longevity.

A lot of this really resonates in the intrinsic value backing each outstanding share. On our current asset base, we have been successfully growing reserves per share, production per share, and in today's metal price environment, we will be demonstrating growing profitability per share, be it earnings per share or cash flow per share. We believe that these favorable attributes and the exceptional strength of our balance sheet puts AuRico in great stead to facilitate ongoing returns for all our shareholders.

With that, we'd now like to turn proceedings to the operator to open the call to Q&A.

(operator instructions). Rahul Paul, Canaccord Genuity.

At El Chanate, I assume the last impairment test was conducted as of year-end 2011. I'm surprised and a little confused by the magnitude of the write-down since the reserve update then seeing that negative negative 6% decline in ounces, 3% increase in freight. The discount rate is now changed. It seems to me that you're using a higher gold price.

So I'm just wondering, could you provide us with some additional colors on the right operating and economic parameters that cost this impairment? How exactly did you come up with your new valuation of El Chanate?

Sure. We -- in taking the model, we applied obviously our new exploration and drilling results from 2012, and essentially the prior year model contained material that wasn't in our reserves and resources, and there was a technical interpretation change for that material, and therefore, it was removed from the model. That, along with the depletion, caused the majority of the difference.

So it was mostly -- I mean would it be safe to assume, it was mostly the result of removing ounces that were not near reserves and resources?

Yes.

Okay. That clarifies things a little bit. Then, so what would the carrying value of El Chanate be as of December 31, 2012? Is it just the $170 million assigned to PP&E plus mining interests?

Approximately $300 million.

Okay. So there is some goodwill?

Yes. There is a $106 million remaining in goodwill.

Okay. And then just staying with El Chanate, you don't have much of a resource beyond reserve sales. In your last exploration update, you spoke about two new discoveries at El Chanate, possible extension of the Northwest zone. How long do you expect it will be before you can come up with a resource for these new discoveries, or have you already done the work and established that the new discoveries would not amount to anything significant?

Rahul, it's Scott here. No, we are very excited about what we're seeing at El Chanate in terms of exploration prospectivity, particularly towards the northwest. You know, the guys back in 2012, they did a reasonably sized exploration program where they are focusing on targets along the existing trends to the northwest, as well as to the southeast, and we're going to be following up on that as part of this year's program. But it's the first time since we've had this asset in our ownership that we stepped outside of the existing open pit footprint with our drilling program, and as a result, it's the first time we've identified targets where you could see a potential mineralization coming into resorts categories.

So that really is the fundamental objective that's part of this year's program, and we are looking to have news flow to the market as we progress with those endeavors.

Okay. And just stepping back a little bit at El Chanate again with respect to the exploration prospects and the potential to add reserves, is your outlook unchanged from when you acquired the assets, or has the work done since then tempered your enthusiasm or increased it?

I think it's safe to say that we are more enthusiastic than we've ever been when it comes to exploration outside of El Chanate.

Okay. No, that clarifies a lot. And what is the life of mine strip ratio at El Chanate associated with your current reserves?

It's around 2.7.

2.7. Is anything at all expected to be capitalized?

Well, in terms of -- you'll recall that we are expanding the pit to the southeast, which was necessitated to upsize the production profile from 50,000 ounces to a consistent rate of 70,000 to 80,000 ounces. So that expansion, that commenced last year, and that was always going to straddle 2012 and a little bit of 2013. So that expansion activity will be capitalized, and then you have got the normal sort of sustaining CapEx component, which as per our guidance is around $8 million this year in terms of routine capitalized stripping.

Okay. And then last question from me, do you believe the $550 to $600 an ounce cash costs at El Chanate, do you believe those costs are representative of steady-state cash costs going forward, excluding any future inflation impact?

I think they are, Rahul. And what I would point to is El Chanate's track record. You know, if you look at last year, this operation finished the year at $434 per ounce. And if you look at every single quarter during the calendar year, that's where it was routinely operating at in terms of cost level. And then even in the second half of 2011, when it was under our ownership, again, it was always operating in that sort of cost level. What you're seeing now is the costs have been ratcheted up a little bit as a result of the adoption of this new accounting standard, IFRIC 20, which essentially bumps it up by this $75 additional costs, but I had no reason to see why it shouldn't be steady-state performance moving forward, I mean track record and everything.

Okay. Thanks, guys. Thanks for clarifying that. That's it for me.

Adam Melnyk, Desjardins.

Just following up on Rahul's question about the life of mine strip at [Chanatay], 2.7. Does that include tons which you expect will be capitalized?

Yes, definitely.

Well, what should we be using for a reasonable operating strip ratio then hitting the expense line?

Adam, we don't really provide that level of guidance.

Okay, fair enough. And just to circle back, I think Rahul did a good job with the questions on the write-down, but I just want to confirm that the write-down at El Chanate is due exclusively to the exclusion of ounces, and there's no changes to throughputs or recoveries of grade expected going forward because there was an overage in the MD&A to revise the operating and economic parameters, which is a bit of a catch also. I just want to drill down a little more specifically on that as well.

The primary cause of the adjustment to the balance of goodwill was due to the fact that we were taking more of a prudent stance or some may call it a conservative stance, and since our life of mine modeling, we were only modeling in situ reserves.

Okay. But your expected recoveries and great profile and strip ratio profile hasn't changed materially. It's mostly an exclusion of ounces, is that accurate?

Yes, that's accurate. And you can verify or validate that just by looking at all the disclosures associated with the most recent reserve and comparing that to the prior reserve.

Okay. Great. Thanks. And then in terms of Kemess, the asset has an IRR of around 10%. Just wondering what the steps are going forward. I know you mentioned permitting. If you could provide us with a more specific timeline in terms of advancing this asset and what your budgets will be and how much cash you will be putting towards Kemess going forward?

Yes, looking at it, that's a difficult question to answer because I do want to advocate that the ink is not even dry yet on the feasibility and so much so that the management team were already aware of further optimization opportunity that would even further augment the economics within this study. I guess from an exploration perspective, the deposit is still open to the east, and that's why this year we want to embark on further drilling programs to better understand how far the mineralization may extend.

So, to your question, we've dedicated a budget of some $5 million there for that drilling program. We see a lot of value here in Kemess, and in all honesty, we're still trying to ascertain what the potential upside valuation may be.

You know, I think what I advocate is that it is evident to us that there's not a lot of value reflected in our share price. But when you look at the resource upside and the inherent valuation opportunity -- and believe me, it really resonates when you are on site and you see how the property is already two-thirds built given the existing infrastructure.

So, right now to be honest, we've got a subset of our management team that's focusing on permitting activity, as well as its exploration program. And once we have all this in hand and the necessary data points, we expect to have a large number of options in front of us in terms of how best to surface values for all of our stakeholders. So, again, just to answer your question, it's roughly $5 million for exploration and a very small budget for just ongoing permitting activities.

Do you have a sense, Scott, of what the timeline would be and maybe if you want to provide a range at this point for advancing that permitting in BC?

No. We don't have anything that we are willing to publicly commit to.

Okay. And in terms of making a production decision, what would be the key metric that AuRico would look at, or would it be a combination of metrics, including IRR and MPV, for the project, and where would you need to see those types of metrics get to on this project through exploration success or the optimizations that you talk about?

In all honesty, I can't really disclose or answer that question because we haven't given it that level of rigor in terms of thought. As I mentioned, right now we're just focused on truly understanding what is the intrinsic value here and just focused on permitting and delineating what is the exploration upside.

Okay. Thank you. That's all my questions.

(operator instructions). Craig Johnson, Scotiabank.

Just a couple of housekeeping questions. Just back to Rahul's question about the carrying value at El Chanate right now.

In the segmented note in the financials, it says $106 million in goodwill and then $354 million in assets at El Chanate. Is there something I'm missing there to get to kind of the $300 million overall carrying value?

Yes. There is a liability that needs to be deducted to get to a net asset.

Okay. Perfect. Then so it's about $300 million is the overall carrying value?

Yes.

Okay. Great. And then in terms of the adjusted EPS, the consolidated figure of $0.22 for Q4, there's a $75 million tax impact on the adjustment. And I was just wondering if you could kind of clarify what that tax implication is as it seems to be greater than 50% of the adjustments?

Yes. It relates to the disposition of Ocampo or the gain on Ocampo. It's approximately $72 million.

Okay. Great. That's all my questions.

Anita Soni, Credit Suisse.

Scott, a few more questions on El Chanate, more on the technical side. On the fourth quarter, you guys made a decision to start compiling lower grade material onto the leach pad. Is that something that we should expect to continue, or will you revert back more to reserve grade, which I think you posted about 0.67 grams per ton at year end?

First, I guess I want to counsel that you assume reserve grades moving forward in terms of the tonnage grade being stacked. As and where we can be opportunistic, we always will. I think as Rob mentioned in his remarks, we are very disciplined, and we will always drive our decisions as free cash flow. So anything that's accretive to that. But when you look at our budgeted plans this year or what's implicit in our guidance, it really does assume a great profile that's consistent with the in situ reserve grade.

Okay. And then with regards to the recovery rates, you had some impact in Q4 as a result of the ADR plant. How do you see that ramping up to the, I guess, normalized recovery rate over the course of the year? I guess my question is, in Q1 are you back to normal, or are you still ramping up to normal?

We are back to normal. Peter and the guys down at El Chanate and our technical services team have done a great job such that we are back to full capacity very early in the quarter. And I guess the best sound bite I can give you to give you comfort is, if you look at where we are at quarter to date, and annualize it, it's right in line with our full-year guidance.

Did you give us full -- I'm sorry -- did you give us full-year guidance on a throughput grade and tonnage basis?

No, we did not.

No, no. Okay. And then I guess just in terms of the inventory adjustments that tends to flow through at El Chanate, how much will you be -- do you expect to take this year?

You may have to elaborate, Anita. I'm not sure what you're referring to when you say inventory adjustments.

I think it's relating to sort of lagging costs and the leach curves. I guess usually there is some kind of or at least this past quarter there was an adjustment to the positive that I guess reduced the cash cost is the best way to put it.

I'm looking at Rob. We may have to get back to you, Anita. We're not expecting any inventory adjustment. It's pretty smooth in terms of the cash cost profile at El Chanate. You would've seen that last year where quarter over quarter it was quite consistent in the low $430 per ounce.

Okay. I guess I'm just looking at it, and one of the things that I went over with Rob was that you booked about $7.7 million in operating costs for this quarter, and you processed 2.9 million tons. That would imply a little over $2.00 per ton in operating costs for a mining process and G&A, and that's pretty low. So I think there's some of it -- there's a reconciliation that's coming on from lower-cost ounces in prior quarters, but anyway, we can take that off-line.

Actually, I think you are referring to the fact that our leach curve holds up a bunch of ounces. And so you're looking at a gross cost that gets netted out by the ounces caught up in the leach, and I think I'll defer to the technical guys, but we recover about 60% of our ounces within the first 12 months -- 60%, 65%. So, the remaining costs will get caught up in inventory.

Okay. So I should just keep a rolling sort of 30% in the inventory?

Yes.

Okay. Thank you.

Dan Rollins, RBC Capital Markets.

Scott, maybe just going back to Kemess, could you just confirm what infrastructure regarding, say, mills crushers, SAG balls are still inside? I was under the impression that a couple of the mills were taken over to Young-Davidson, and then the other ones were going to be dismantled and sold. I just don't know where that stands since you've acquired Northgate.

No problem, Dan. I'm going to turn the call over to Chris Bostwick, who is our Senior Vice President of Technical Services, and he was the gentlemen that was championing the whole feasibility study. Chris?

Yes, the Kemess concentrator mill had two trains each with a SAG mill and a ball mill. You are right. The ball mill was sent to Young-Davidson, and one of the SAG mills was sold to another operation. The remaining train is intact and has not been committed to anybody, and it has a capacity of approximately 25,000 tons a day, which is what we planned for in the Kemess underground feasibility study over 9 million tons a year.

Okay. Perfect. And then just one other question just on Kemess. Obviously you're not getting much value for this asset within the current share price. And obviously you're going to need to surf its value here to do anything. But the key overhang here has always been from the social license given some of the issues that happened in the past. I'm just wondering, Scott, if you could talk about what you guys have done since you've acquired Northgate to reengage the local community, local stakeholders and how the, I guess, the project is viewed now versus where it was viewed back in 2006?

I want to stay at a high level. But I guess what I would put forward from my perspective, as you make way through the feasibility study, you'll see that it's a new strategy, a new design, especially in regards to the management of tailings and how we're depositing those tailings. There's been a reengineering in that regard. I think it's also fortunate we are a new company in terms of ownership of this asset, and that therein leads to a new relationship. And what I can put forward is that we are currently in constructive dialogue as we speak.

: Perfect. That's all I have. Thanks, guys.

(operator instructions). Bradley Semmelhaack, Crystalline Management.

Good morning and congratulations on the quarter. My question is regarding at the time of the announcement of the substantial share bid, you mentioned the policy of using some of the balance of the cash to reduce debt. And since that announcement, there's been no follow-up on that policy. And I'm just wondering where you are at with that and if the policy has changed and how your uses of that cash may have changed? Thank you.

No problem. You know, we did announce the sale of Ocampo and we did commit to making a significant capital return, as well as looking to reduce debt. We have successfully closed a $300 million share buyback.

In addition, we fully paid down our revolving line of credit facility, which is a debt facility. So we paid that down by $138 million. In terms of utilizing our remaining balance sheet, we are very comfortable with the current working capital position, and we don't see any need to pay down any further items of the balance sheet. So we're very happy with the status quo moving forward.

Okay. Thank you. That's my question.

John Tumazos, John Tumazos Very Independent Research.

I have two questions. First, I want to just express my admiration for the transformational acquisitions of selling Ocampo and having El Chanate, Kemess and Young-Davidson.

The first question is, do you envision other transformational acquisitions to further enhance your asset base? Second, now that it's done, would you do another Dutch tender if the opportunity arose? I've been doing this 34 years. I only covered one company otherwise that had a Dutch tender -- a steel company in 1988, 1998 sold one division and did a Dutch tender for its other. And they did the Dutch tender at $30, and then the stock fell to $20, and it never traded much above $20 again. And it just seems like the Dutch tenders benefit the 12% to tender and not the 88% that remained.

Okay. Thanks for your question, John. You know right now if you looked at all the bandwidth and resources within the Company, we are entirely focused on our existing asset base. Young-Davidson is going to be a key flagship asset moving forward, and all the bandwidth is just focused on the ongoing ramp-up of that asset and derisking that asset in the eyes of the market.

It's not lost on me that we've got an exceptional balance sheet and a growing cash flow profile moving forward, and we are in an interesting environment right now in terms of valuations, etc.

So we're not operating with blinders on. We always keep an eye out on what's out there in terms of opportunities. But right now I can confirm that everyone is just focused on operating the existing asset base and looking to get full valuation ascribed to what we currently hold within the Company.

In terms of the second part of your question, would we engage in further share optimization initiatives? I mentioned in my remarks, we jealously guard our share count in terms of moving forward. We're very focused on the intrinsic value behind each share. I think we are demonstrating an asset base that has got growing reserves resources per share, production per share. Today's metal price should be growing profitability per share, and that's likely to result in cash accumulation on the balance sheet. So, again, we'll need to evaluate what's best for the shareholders in terms of driving shareholder returns, but can't really commit to much more than that right now.

Thank you.

There are no further questions at this time. I will now turn it back over to Anne Day, VP of Investor Relations.

Thanks, operator. Just to wrap up, we'd like to thank everyone for joining us this morning, and as always, any time you have any questions, feel free to reach out to us, and we'd be happy to help. Again, thanks for your time today, and we will now close the call.

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