Coeur Mining Inc (CDE) 2013 Q2 法說會逐字稿

Good afternoon. My name is Rebecca and I will be your conference operator today. At this time I would like to welcome everyone to the second-quarter 2013 financial 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). Thank you.

Ms. Bridget Freas, you may begin your conference.

Thank you, Rebecca. Welcome, everyone, to our second-quarter earnings conference call. I am Bridget Freas, Director of Investor Relations. This call is also being webcast on our website at www.coeur.com, where we have posted slides to accompany our remarks. Telephonic replay of the call will be available on our website through August 22.

We will be discussing some forward-looking and other preliminary information today, and we caution our audience that such statements involve risks and uncertainties that could cause actual results to differ materially from projections. Please review our cautionary statements shown on slide 2, and review the risk factors, including some that are specific to our industry, described in our latest annual and quarterly financial reports filed with the US SEC and Canadian regulators.

We will also be discussing some non-GAAP figures that we believe provide meaningful information to our investors. The appendices to our slides contain a reconciliation of the non-GAAP information to US GAAP.

On the call today are Mitchell Krebs, President and Chief Executive Officer; Peter Mitchell, Senior Vice President and Chief Financial Officer; Frank Hanagarne, Senior Vice President and Chief Operating Officer; Don Birak, Senior Vice President of Exploration; and Joe Phillips, Senior Vice President and Chief Development Officer. Let's get started.

Mitch, please go ahead.

Okay. Thanks, Bridget. Welcome to everyone on the call, and thank you for joining us today. We picked today for our earnings, knowing that prices would be up strongly, so it's a good day to be announcing our quarterly results. We had a very solid quarter, which reflects a lot of hard work and dedication from the entire team. We had a 21% increase in silver production, and a 7% increase in gold production versus the first quarter.

Operating cash flow was $63 million or $0.63 per share. Operating and financial performance at Palmarejo was very strong due to higher grades, 24% higher silver production, and 23% higher gold production compared to the prior quarter. San Bartolome had another consistent quarter, and Kensington was basically flat compared to the first quarter due to lower grades, but is positioned for a strong second half.

Rochester continued its ramp up, but at a slower rate than we were targeting. We're anticipating a stronger second half now that additional crushing capacity is in place. We're reinvesting low levels of capital back into our existing operations in order to maximize net cash flow. These projects at San Bartolome and Rochester are expected to be completed under budget, and begin paying back by the end of the year.

We settled the outstanding claims dispute at Rochester, which allows us to accelerate our plans to further expand this operation for minimal capital. And we also closed the Orko Silver acquisition during the second quarter, and recently completed a PEA for the La Preciosa in Mexico. We are now kicking off a feasibility study there, which is expected to be completed by the middle of next year.

We'll focus our efforts at La Preciosa on optimizing the project in order to maximize returns, assuming the current lower prices. We won't proceed with construction at La Preciosa unless we feel we have a project that can generate an all-in rate of return that significantly exceeds our cost of capital. And we also ended June with $350 million of cash and available credit lines.

Our main focus remains the same as it has been since last year, which is to find ways to maximize our net cash flow and achieve operational consistency. I'm encouraged with the progress we're showing, and am enthusiastic about the opportunities and targets we have identified to deliver positive net cash flow during the second half of the year.

I think slide 5 does a good job of highlighting the four areas we're focusing on to maximize the Company's net cash flow. It's not just about cutting costs; it's about being efficient and finding as many ways as we can to generate as much cash flow as possible. In the area of revenue enhancements, we're prioritizing higher-grade stopes for second-half production at Kensington; we're increasing crushing capacity at Rochester, for minimal capital; we're completing the plant expansion at San Bartolome to drive higher throughput; and we're going to increase the recovery rates at Palmarejo through optimization work, which is expected to increase revenue and lower unit costs in the second half of the year. And all of these represent recurring incremental revenue for the Company that will mostly fall straight to the bottom line.

In the area of the cost reductions, we have already realized $19 million in cash operating cost savings in the first half of the year. We feel we're on track to generate an additional $8 million to $9 million in further operating cost reductions during the second half, even with higher-than-planned production levels. Examples include reduction in outside contract services, shorter waste haul distances, and greater cost efficiency within the maintenance systems.

We have also reduced our second-half exploration budget by 17%. Nearly all of these reductions will also continue to benefit the Company in future periods. In the area of capital spending reductions, we completed, at the end of June, a top-to-bottom review of all ongoing and planned capital expenditures. The mission was to limit capital investment only to projects that are either necessary for health and safety, environmental protection, or the long-term sustainability of the operation, or expected to generate a significant return on that capital.

As a result, we have eliminated or deferred $24 million of capital projects in 2013, which reduces our projected 2013 CapEx by 18%, to a range of $100 million to $110 million for the full year. As we look ahead to 2014, we are targeting CapEx of $80 million or less, which we believe will allow us to remain cash flow positive at current prices.

In the area of working capital improvements, we reduced our working capital needs by $12 million in the first half of 2013 by focusing on reductions in supply and material inventory, and are targeting $30 million of additional working capital reductions by the end of the year. We are maintaining our prior guidance for full-year silver and gold production. We're also maintaining our guidance for cash operating cost per silver ounce, despite lower gold byproduct credits, which reflects the expected efficiency gains and cost reductions I've outlined.

As we execute on our production and cost reduction targets, we continue the process of elevating worker safety to the point of becoming a true Company value. That commitment was recognized this quarter by the Nevada Mining Association, which honored Rochester with the first-place safety award for surface operations, media mine category, for safety performance in calendar 2012. Company-wide, our lost time incident frequency rate declined 56% in the first half of the year, which is something we're awfully proud of and continue to work very hard on.

Now, I'd like to introduce Peter Mitchell, who joined us in June as our Chief Financial Officer, and is doing a terrific job. I'll turn the call over to him to take us through the second-quarter financial highlights.

Thanks, Mitch. Slide 7 highlights our second-quarter financial results. We sold 5.2 million ounces of silver and 63,389 ounces of gold, generating about $205 million in metal sales and $62 million of cash flow from operations. Consolidated production costs were about $143 million for the second quarter. On a per ounce basis, total production cost declined 3% per silver ounce, and increased 6% per gold ounce compared to the first quarter. Our G&A increased by $5 million sequentially, with the majority of the increase coming from silver (technical difficulty) business developer (technical difficulty). CapEx was approximately $27 million in the second quarter of 2013; about twice as much as we spent in the first quarter, as we made further progress on projects critical to the Company's (technical difficulty). Cash and cash equivalents were about $250 million at June 30, 2013. The Company has a $100 million revolving credit facility (technical difficulty) drawn.

The table on slide 8 shows average realized prices; ounces produced and sold; and cash operating costs on a per ounce basis.

I'd like to turn the call over to Frank Hanagarne now, who will take us through the second-quarter operational highlights.

Thank you, Peter. Slide 10 indicates the second-quarter 2013 operational highlights and priorities for all four of our primary mines. Second-quarter 2013 production in our Kensington gold mine in Alaska was down 8% from the first quarter, and cash operating cost per gold ounce increased 6% due to lower grades. We expect production from this mine to increase, and cash operating cost per ounce to decline in the second half of the year, as we mine expected higher ore grades.

Operating performance at our Rochester silver and gold mine in Nevada improved this quarter, with silver and gold production up 30% and 8%, respectively, over the first quarter. However, this was a slower ramp-up than we had expected due to poor pressured performance during the quarter. We expect the capacity expansion underway at Rochester will accelerate production in the second half of 2013.

Production improved significantly at our Palmarejo mine in Mexico, with second-quarter silver and gold production up 24% and 23%, respectively, compared to the first quarter of 2013. Silver and gold ore grades from both open pit and from underground operations improvement compared to the first quarter, and recovery rates are expected to increase by the end of the year.

Our San Bartolome mine in Bolivia had a solid quarter, with small improvements in production and operating cost from the first quarter. The planned mill expansion at San Bartolome is expected to drive annual production levels up over 6 million ounces silver in 2014 and for the next several years. We plan to provide a three-year production forecast for each of these operations later this year. Turning now to the operating performance details of each of our mines, slide 11 shows second-quarter 2013 highlights for Palmarejo. Although production levels at Palmarejo started off slowly this year as a result of lower mining rates and planned ore grades, a rebound in the second quarter got us back on track. And we remain confident in our 2013 guidance for this important asset.

Palmarejo generated metal sales of $86 million in the second quarter. As previously discussed, we sold more ounces than we produced, due to a timing lag in the first quarter. Palmarejo produced 2 million ounces of silver, and 28,191 ounces of gold at cash operating costs of $3.25 per silver ounce. Ongoing cost reduction initiatives at Palmarejo have lowered cash operating costs, and we expect to make further progress in the second half of the year.

Capital expenditures at Palmarejo were $9.2 million for the quarter. Process recovery enhancements at Palmarejo are expected to boost recovery rates by 5% to 10% by year-end.

San Bartolome generated $49 million in sales in the second quarter. Cash operating cost per silver ounce were $12.89 compared to $13.27 in the first quarter 2013. Capital expenditures in the second quarter were $3.2 million. The mill expansion project underway at San Bartolome is expected to increase processing capacity at the mine by approximately 10% to 15% in 2013. We expect the expansion to be completed under budget and generate less than two-year payback. This expansion project is on schedule and expected to be completed by the end of the year.

Turning to slide 13, second-quarter production at Rochester was 843,845 ounces of silver, and 9404 ounces of gold, increases of 30% and 80%, respectively, compared to the first quarter. Cash operating costs of $14.75 per silver ounce were 9% higher than the first-quarter 2013. Metal sales totaled $35 million. We remain very enthusiastic about the 2013 expansion underway at Rochester. We will invest about $4 million this year to expand crushing capacity from 9 million tons to 14 million tons. Monthly crusher throughput is expected to increase in the second half of 2013, leading to expected higher second-half silver and gold production.

In addition, we are expanding the mine's heap leach capacity to approximately 67 million tons, at an estimated capital cost of about $15 million. This planned expansion is designed to accommodate sustained higher production rates driven by mining ore contained in historic stockpiles. These stockpiles were created during the mine's 26-year operating history, when gold and silver prices were significantly lower than the current market. Capital expenditures at Rochester were $6.6 million in the second quarter.

Kensington produced 23,162 ounces of gold in the second quarter, an 8% decline from the first quarter. This contributed to a 6% increase in cash operating costs of $1115 per ounce in the second quarter. Metal sales totaled $31 million for the quarter. Average mill head grade -- a math average mill head grade of 0.18 ounces per ton was 10% lower than the first quarter due to the processing of lower-grade stockpile ore. The gold grade is expected to increase during the second half of 2013, as scheduled stopes are mined and processed. Capital expenditures at Kensington were $7.4 million.

I'll now turn the call over to Joe Phillips to discuss our development efforts at La Preciosa.

Thank you, Frank. In July we completed a preliminary economic assessment for La Preciosa which demonstrates the viability of the project at higher silver and gold prices, and provides a solid foundation from which we believe we can enhance the project's economics over time. We are starting basic engineering and full feasibility work in the second half of 2013, along with exploration, infill, and development drilling.

We're also working on key infrastructure at site, and have been focused on a sound, proactive community relations program in the area. The PEA includes an additional mine life of 17 years, producing an average of 9.1 million silver ounces and 15,100 gold ounces per year over the first 14 years, at an average cash operating cost of $13.86 per silver ounce.

On slide 18 we outline some of the key areas of focus for the feasibility study for improving the economics of the project. Our goal over the coming year will be to develop opportunities to make La Preciosa a compelling project at current spot prices. We will be focusing our exploration efforts in areas we believe will add resources and reserves, reduce the strip ratio, and improve grades. Metallurgical studies will evaluate methods to increase the expected recovery rate, optimize reagents, select the best throughput rate, and improve overall plant economics.

Slide 19 breaks down the expected timeline for advancing Preciosa, showing the completion of our PEA in the second quarter, and the filing of the PEA on the third quarter 2013. We'll be commencing the feasibility study over the coming year. And based upon favorable results (technical difficulty) commence and complete mine construction during 2015 to 2016. That would give us an expected initial production in the second half of 2016.

I'd like to reinforce the comments made by Mitch and Frank regarding our capital program. Coeur took initiative in 2013 to execute two high-return projects to improve the production and reduce costs at Rochester and San Bartolome. These projects are expected to be completed and begin showing benefits by the end of this year. We're fortunate that our operations are now well positioned to operate efficiently in the coming year with minimal sustaining capital.

Kensington, San Bartolome, and Rochester should have only modest sustaining capital requirements next year. And at Palmarejo we're evaluating the opportunity to scale down and defer the silver works for the next tailings lift, further reducing capital. We believe our investments in capacity enhancements and efficiency improvement over the past two years will enable us to harvest the benefits with lower costs and improve recovery in the coming quarters.

Our unique mineral deposits at properties like Palmarejo also offer us significant flexibility to adjust our operating plans and respond to lower prices without significant long-term impacts to the operations.

With that, I will turn the call over to Don Birak to take us through the second-quarter 2013 exploration highlights.

Thanks, Joe. I am pleased to give you this update on our second-quarter 2013 exploration program. At the peak of the quarter we had 11 drills and crews engaged. Good results were obtained from Palmarejo, Rochester, and Kensington this quarter, and I'll cover those in the next two slides.

Looking forward, we recently committed to a 17% reduction in our budgeted 2013 exploration (technical difficulty) additional $3 million of the budget we allocated to our new La Preciosa project. For your reference, we have included our second-quarter drill results in the appendix of this presentation.

In our largest program, conducted at the Palmarejo district, exploration focused on three areas -- Guadalupe, around the current Palmarejo surface and underground mining area, (technical difficulty) targets in the district. Here we show a plan map of Guadalupe, and our drilling to expand the size of Las Animas surface mineable reserves.

Good results were obtained from drilling at El Salto, and we commenced target drilling -- target generation work on La Curra. Both areas show potential to contribute to expansion of Las Animas.

Shifting to the Palmarejo mine area, we show on this plan view the targets we drilled in the quarter, and those we plan to drill in the second half of the year. Today, our best results have come from underground drilling on the 108 (technical difficulty) and Interclavos zones, and from around the Tucson-Chapotillo zone.

Though many drill assays are pending, we are encouraged by the results thus far, and expect to see positive impacts underground and service mineable resources and reserves. Finally, we are evaluating opportunities to expand the Rosario surface mine Southeast, towards the upper part of the 76 Clavo and at depth.

Now, we moved to Rochester and our second-largest drilling program for the quarter. Exploration here continued to define ore grades within our historic stockpiled material, built over the long history of this large silver and gold mine in Nevada. Recall, we commenced this work last year, and estimated that around 150 million short tons of material were contained in the various stockpiles shown on this slide 24.

That work resulted in definition of new mineral reserves and resources on nearly one-third of the estimated total tons, and we continue to drill to define and expand stockpile resources. In the coming months, we're planning to update our year-end 2012 mineral resources and reserves at Rochester to reflect the impact of the recently settled claim (technical difficulty) mentioned by Mitch.

To complement the evaluation of low-cost stockpile [we continue] at Rochester, we commenced work to define new areas with potential to add to in situ mineral resources and reserves. Seven areas are shown on this map, and work continues to select a new drill sites within them. In addition, we show a cross-section looking north to the main Rochester deposit, demonstrating the potential to expand the mine limits.

Now we move further North, to Alaska, and our Kensington gold mine. Most of our work this past quarter, in addition to ongoing definition drilling from underground, was devoted to expanding the size of the current Kensington mineral resources and reserves. Here we show some of the results attained, which suggests Kensington mineralization extends over 200 feet to the south, and is open both to depth and up.

Drilling at this favorable sector of the mine quarter was made possible by a new development hitting on the 1170 foot level shown here. At this stage, drilling is still fairly widely spaced. But results are very encouraging towards achieving our goal (technical difficulty) Kensington (technical difficulty). Thank you.

Mitch?

Thanks, Don. As I said at the beginning of the call, we are focused on maximizing our net cash flow and maintaining operational consistency. We feel we have a solid plan in place to address the lower prices we're currently experiencing. Our portfolio of five operations provides us with a range of options and opportunities to adjust to the current environment.

We expect to be net cash flow positive during the second half of the year, and in 2014, at these current price levels. We are maintaining our production guidance for the full year and look forward to providing you with three-year plans for each of our operations later this year.

We do see more upside to silver and gold prices than it downside, but we'll continue to manage the Company in a way that reflects the current reality and protects stockholder value.

Thanks again for joining us on the call today. Now, Operator, we're ready for questions.

Operator?

(Operator Instructions). Jorge Beristain, Deutsche Bank.

Hey, Mitch. Congrats on your results, and just two follow-up questions. One is if you could kind of dimension the inventory write-downs, and whether that was a cash or non-cash impact. Just kind of explain the mechanics behind that. That's my first question.

Yes, hey, Jorge. Those strategic investments were marked down at June 30. And that's a non-cash impairment on those holdings.

Sorry, I was referring to the inventory adjustment.

Let me look. The inventory --

The inventories were reduced, Jorge. In terms of write-down, there may have been some very modest adjustments, but nothing material, certainly.

Well, I guess my question is, that write-down flowed through EBITDA?

The write-down on the investments?

On the inventory.

On the inventory. You mean the $12 million of reductions in inventory in the first half?

I thought it was -- you guys mentioned $24 million in the second quarter resulted. So, I'm looking at page 34 of your presentation -- change in inventory was about a $24 million impact. And I'm just trying to understand if that was actually a drag on your EBITDA for the quarter. And it seems like a one-off.

That change in inventory would just have been primarily metal sold from the end of the first quarter to the end of the second quarter. So in calculating EBITDA, that would all be below, or not in that calculation.

Okay, maybe I'll circle back off-line on that. But the other question I had was, could you -- you mentioned modest sustaining capital for 2014, or going forward on a lot of your mines like Rochester and San Bart's that are kind of steady-stating. What kind of number would you be looking at for sustaining capital overall for Coeur d'Alene for 2014?

Yes. We said in our comments there, and I think in the release, the target of $80 million total next year in 2014, of total CapEx, which includes capitalized exploration, which would be somewhere in the $10 million to $15 million range. So you would take that off the $80 million, and then split the rest really in half between sustaining and then planned expansion capital.

Perfect. That's what I was looking for. Thank you.

Matt Vittorioso, Barclays.

Yes hi, guys. [O. B. Bate] in for Matt here. How are you?

Hey, Matt. How's it going?

I'm well, thanks. So, with regard to La Preciosa, I know you guys are currently starting that feasibility study. And I just want to confirm -- do you currently expect to spend like $15 million in the back half of 2013, and another $18 million in 2014? Is that about right?

To get to the middle-2014 objective of a feasibility study completion, that total expenditure should be around $25 million. And of that, we're targeting about $15 million in the second half. So that leaves the other $10 million for the first half of next year. And then we'll get to that decision point the summer of 2014.

Great. It gets expensed, right? It's not capitalized.

That should almost all be expensed.

Okay. And then could you just maybe walk us through the decision process as it pertains to that go/no go that you'll face in second half of 2014? I know that -- I think in this slide deck here you had mentioned silver prices in mid-20s generate all-in return in excess of cost of capital. Is that where we should be thinking about as you guys make a decision at that point?

Yes. So, over the course of the next 12 months, as we work through the feasibility in some of the areas of opportunity that Joe outlined during our prepared remarks, what we'll hope to see, middle of next summer, is a project that, based on the price deck at that point in time, can generate a return in excess of our hurdle rate, which we consider to be in the 10% to 13% range. So it will need to exceed that minimum level on an all-in basis.

But in terms of the precious metal prices that get you there, silver in the mid-20s, call it roughly $25, is what you're thinking? Is that --?

Well, we'll have to see what -- the extent of the optimization work.

Okay.

No pressure, Joe, but the more we can squeeze on the project, the lower that price threshold will be next summer. And it's our goal to get that down as close to current spot as possible and still achieve those minimum return criteria. And then how far down that silver price can go and still achieve those returns is really going to be driven by the work that's just kicking off now.

Fair enough. And then just a quick one on the settlement of those claims with Rye Patch at Rochester. I think there was some mention of potentially expanding production at Rochester. Can you just give us a sense of those plans and timeline -- I guess when that might take place, and how you guys are thinking about that?

Yes, sure. There is sort of three stages to Rochester's future. The first of which is underway right now, that we go into some detail in the press release regarding the additional 67 million tons of capacity. So that's stage one, and that's going to allow us to achieve this 4 million ounce to 5 million ounce silver production range, which is up pretty significantly compared to last year, which was 2.8 million ounces of silver.

In the meantime, we're working on permitting a further expansion at Rochester for a additional leach pad capacity that would add an additional 100 million tons on top of the expansion that we're working on right now. So that would allow us to not only extend the mine life, but with some investment in crushing capacity, we could hopefully lift the production levels up, once that permitting process and that construction is complete. And that's probably three years from now.

And then once that gets going, then we'll begin our work on the third phase, which will really be focused on getting after the additional about 300 million tons of material that we have there at Rochester in the measured and indicated and inferred resource categories. And that will be a full feasibility and then another permitting cycle, which will then again further extend Rochester and also allow us to step up production. But that's probably about five years away.

Great. That's really helpful. Thanks very much, Mitch.

Brett Levy, Jefferies.

Hey, guys. You guided to being free cash flow positive two-half 2013, and also in all of 2014. Is that after CapEx?

Yes. That would be -- just walking down the cash flow statement, operating cash flow, less CapEx, less royalty payments to Franklin Nevada, which show up in the financing section of our cash flow statement.

Got it. So actually you will be building cash from that $249.5 million number that you're at now through the next 18 months?

Yes, that's right. That's what we expect.

Okay. Is there a possibility that you're comfortable enough with the status quo that you might increase some of your CapEx to keep yourself closer to neutral?

That's a good question. We were just talking about that yesterday, internally. As we go through the budget cycle here in the last half of the year, there will be opportunities presented, all of which will have a fairly high bar and a high return threshold associated with them. And those that we think have the potential to generate significant rates of return, we would probably take that step and move ahead with those. But setting that bar higher next year is going to cause a lot of projects to not make the cut. But if there are ones that are unique enough and value-creating enough to include, yes. I think that's what we should be doing as a Company and as a management team, is redeploying free cash into high-return opportunities like that.

And then the last one -- it's all sort of sides of the same question. Is there a minimum level of cash or liquidity that you don't feel comfortable going beyond?

(technical difficulty) to $100 million is around the number that we look at as being our baseline (technical difficulty) cash.

All right. Thanks for the time, guys.

Philip Rabenok, Scotiabank.

Hi, Mitch. I just had a quick one regarding the recoveries at Palmarejo this quarter. It seems like the 81.2 is significantly below historical levels, which have usually been about 10% higher. I know you mentioned this year you expect recoveries to improve, but is there a specific reason for the sudden drop?

Yes, I'll ask Frank to handle that.

Yes, at Palmarejo and our open pit mine we're -- in our current mine plan, working through a zone that has elevated levels of manganese, which has created some recovery loss in the flotation circuit at Palmarejo. We're working to address that now on an ongoing basis. And then we have some issues in the CIL circuit which treats the flotation tail. And we've been having some soluble losses there that we're also working to remediate through a plant flowsheet modification.

Okay, great. That's very helpful. Thanks a lot.

John Bridges, JPMorgan.

Hi, Mitch, everybody. Just wondered, you must be very popular there in La Paz with the tax you're paying. Just wondered if you could give us a bit of guidance as to what we should expect and what we should be putting into our models for the next few quarters for that?

Yes. It's great making a lot of money, but the tax man is always there knocking on the door. And that's the case for us both in Bolivia and Mexico. Peter, do you want to -- effective tax rates?

Certainly. The effective tax rate, approaching 40% in Bolivia, and about 35% in Mexico. And that as a result (technical difficulty) level of profitability in both countries. And that's the level of tax that we've been paying (technical difficulty).

And then in the US?

We have enough (multiple speakers).

And that number you're quoting doesn't include either royalties or things like that down in Bolivia.

That's right. That's just the income tax rate. Like in Bolivia, the gross revenues royalty of 6% that we pay, that is picked up in production costs.

Okay.

So, yes.

Good, good, good. And then just as a follow-up, the old dumps that you're going back into, how robust are those at lower silver prices?

We've removed the word dumps from our vocabulary around here.

Sorry, sorry.

We call them economic stockpiles. But as far as the robust nature -- Don, correct me if I'm wrong -- but I think that the economics that we've run on those go down to the $13 silver range?

Yes, that's right. You don't have the drill and blast costs. It's just pick it up and move it. And metallurgy is the same. So it really is low cost. And I can't remember exactly the low-end number, but I think you're right in that range.

Okay. That's all for me.

I'll get you the gold number, John, too, in an email I'll send to you that has the corresponding gold price that -- I think it might be in the technical report. I'll have to look.

Well, what we use for the reserves.

Yes, what do we use on the reserves?

$1425 and $27.50 for last year. And of course, that's going to change going forward, but that was on whether it was in situ or stockpile material.

That's right. And, John, it's part of the -- probably the late third quarter when we come out with, and provide some three-year look-forwards for each of our operations. That will include -- and I think we mentioned this in our July production release for the second quarter -- or maybe it was on the heels of the settlement press release at Rochester. We're going to restate, or come out with a revised reserve number for Rochester that removes that claims dispute constraint from the equation, just to give everybody a better handle or some better visibility on what the reserves are now there without that constraint in place. So that should be helpful.

Yes, absolutely. That will help a lot. Appreciate it. Thanks a lot. Good going, guys.

Chris Lichtenheldt, Dundee Capital Markets.

Thanks. Hi, everyone. First, on these three-year plans that you're going to be providing, is there a particular silver price it's based on?

Frank, what are we using in those?

We're using prices currently -- silver between $19 and $20. We haven't landed on a final figure yet. And $1250 gold at the moment.

Okay, that will be great. Secondly, in the press release you noted about some exploration going outside of Franklin Nevada's claim boundary at Palmarejo. Just conceptually, when conceivably could we see some production from that area if it panned out?

Don or Frank, you want to handle that?

Well, I'll take the first part of it, and then Frank can jump in. This is La Curra, which we acquired from Tara Gold here earlier this year. It's an extension of the Guadalupe system, prior work on that really. There was some small production from historic mines, but we really need to reinvent that whole thing. And I think from what we see right now, we feel that the exploration had been done subsequent to that really missed the main target. So that's our premise, and that's what we're going to go after. So next year will be an important year for that. We need to obtain the necessary permits, things like that. But we're a fair ways away to being able to state our reserve and production profile from that one.

Okay, that's great.

Don just defined pretty much the timeline there. We'll be really busy working on that next year, and then we'll see how it models up on the timeline.

And, Chris, it's Mitch. Just to put a fine point behind that, Las Animas is the southern end of Guadalupe. Drilling there has been very positive in terms of defining an open pit reserve, which extends onto this La Curra piece of ground. As we think about Las Animas as an open pit contributor to Palmarejo in the future, conceptually that would come into play on the heels of when the existing Palmarejo open pit would begin to decline. And, hopefully, we'll have Las Animas there to pick up the slack on the open pit side of the mine plan.

Okay, that's interesting. And roughly, can you remind us how many years left of the open pit you have?

It's scheduled right now to go into early 2016, I think. But as we go through the budget cycle and get all the recent drill data into the model, and work on our updated mine plans, we'll be looking at that. But I think, for now, that's where we have ourselves focused as far as declining contribution from the open pit, which is a lot longer now than what in the past I think we had been saying, and what the expectation had been.

Okay, that's great. Just lastly, in the press release you also pointed out some anecdotal evidence of increasing our improving demand from the industrial side, with respect to silver demand. Can you elaborate a bit on that, what you're seeing?

Yes. Especially on the Chinese side, ethylene oxide has been an area where we've seen an uptick in industrial demand. Jewelry demand, especially in India, is another area that -- although I guess it falls technically outside of the industrial box. With those tariffs on gold in India, it seems that silver imports have benefited from that, and we're seeing more jewelry consumption in India than we have in the past.

Okay, great. That's it for me. Thanks a lot.

Chris Thompson, Raymond James.

Good morning, guys. Just a quick question. The common theme in the industry at the moment, the question relates to dividends. Have you guys talked about it? And what sort of performance would you be looking at to give you the confidence of considering tabling a dividend?

Peter, do you want to take that?

Chris, we think about it on a regular basis. It's Peter Mitchell here. But certainly in this environment, from a metals pricing perspective, as well as the growth profile the Company has in front of it in terms of immediate opportunity, like La Preciosa and others, we're in a mode of thinking that preservation of liquidity and accessing these high-return opportunities (technical difficulty) immediate priority for us. But longer-term, certainly (technical difficulty) returning capital to shareholders is something that we are very interested in doing.

Certainly after this point, the intermediate strategy around that has been the stock buyback (technical difficulty) considerable (technical difficulty) capital up to and excluding the most recent quarter (technical difficulty). It is something to think about.

Good enough. Thanks, guys.

And there are no further questions.

Okay. Thank you, everyone, for joining us today. We look forward to speaking with you in the fall to discuss the third quarter. Have a good day.

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