Coeur Mining Inc (CDE) 2013 Q3 法說會逐字稿

Good morning. My name is Jessica and I will be your conference operator today. At this time, I would like to welcome everyone to the third-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, Jessica. Welcome, everyone, to our third-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 November 21.

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; Joe Phillips, Senior Vice President and Chief Development Officer; and Hans Rasmussen, Vice President of Exploration.

We'll get started. Mitch, please go ahead.

Thanks, Bridget. Hello, everyone, and thank you for joining us today to discuss our third-quarter results. We've come a long way compared to last year's third quarter. Let's take Palmarejo as an example, where cash operating costs per ounce have dropped by 26%, head grades are higher and more consistent for both silver and gold, silver production has increased 5%, and gold production has increased 26% compared to last year's third quarter.

There is no doubt we've made a lot of progress, but we must remain focused on three main priorities. Number one is to efficiently and safely operate our existing assets, and to improve on our execution against our short-term and long-term plans. Number two is to maximize our net cash flow by reinvesting in our existing assets. We have several opportunities to increase revenues and decrease costs for minimal capital that we're pursuing. Number three is to expand our reserves and resources at our operations. This maximizes operating flexibility and is the most cost-effective way to grow the net asset value of our Company.

During the third quarter, our silver production was down 9% from the second quarter, mostly due to lower ounces produced at Rochester. Our gold production was up about 5%, mainly because of a very strong quarter from Kensington. At Rochester, we crushed and placed our planned number of tons on pads during the third quarter, but leaching of this material did not begin until October 1. As a result, we are anticipating a large number of silver and gold ounces to be recovered in the fourth quarter, and be very well-positioned heading into 2014.

Kensington had a great quarter, as we had expected. Gold production increased 25% and cash operating costs per ounce dropped 11% to $988 an ounce compared to the second quarter. Overall, our cash operating costs per silver ounce bumped up in the third quarter as a result of the lower production ounces at Rochester, but our year-to-date cash costs per silver ounce of $9.66 give us comfort that we should end the year solidly within our guidance range of $9.50 to $10.50 per silver ounce. Average realized prices for silver and gold were down again -- 8% for silver and 6% for gold -- compared to the second quarter; and they were down 30% and 20%, respectively, compared to last year's third quarter.

Our exploration efforts at Palmarejo and Kensington are really paying off. I keep saying that we've been playing catch-up on our drilling. Since we've increased funding for exploration over the past two years, we are now seeing results that give us a much more positive long-term view of our operations. Three quick examples of this -- we announced an increase in reserves at Rochester during the third quarter of more than 90%. We also saw some terrific drill results from recent drilling at Rochester at new targets located near the existing pit.

At Palmarejo, we are having success in extending the operating life at the main Palmarejo mine, both at the surface and underground. At the same time, we are defining and developing resources at a series of other growing deposits located to the south that we expect will become future sources of production. At Kensington, we continue to drill out higher grade ore zones in order to increase production levels, decrease costs, and increase the mine's net cash flow. We saw the impact this higher grade material can have on Kensington's results during the third quarter, where our average head grade increased 11% compared to the second quarter.

We are laser-focused on maximizing cash flows and on providing attractive returns for our investors. During the first nine months of the year, we've made great strides in identifying and implementing opportunities to enhance revenue from our operations. We've also managed to reduce operating costs by over $24 million or about 6%. We've cut expected full-year capital expenditures by about 20%, and we've seen significant reductions in supplies and materials inventory. All these efforts are ongoing and will not stop. We also believe current market conditions provide a unique opportunity for us to selectively pursue new growth opportunities that will enhance our pipeline and improve the overall quality of our portfolio of assets.

Now I'll turn it over to Peter Mitchell to take us through the third-quarter financial results.

Thank you, Mitch. Slide 6 highlights our third-quarter financial results. We sold 4.9 million ounces of silver and 76,466 ounces of gold, generating about $201 million in metal sales and $27 million in cash flow from operations during the quarter. Consolidated production costs were about $132 million in the third quarter, down 8% compared to the second quarter. Our G&A expense increased about $1.2 million sequentially, with the majority of the increase coming from one-time expenses related to our corporate office relocation to Chicago. Capital expenditures were about $33 million in the third quarter, or 20% higher than the second quarter, as we completed expansion projects at Rochester and San Bartolome.

Cash and cash equivalents were about $211 million at September 30, 2013. The Company's $100 million revolving credit facility remains undrawn. Among the uses of cash in the third quarter was $15 million for share repurchases.

The table on slide 7 shows average realized prices, ounces produced and sold, and cash operating costs on a per-ounce basis. We are very pleased with the improved performance at Kensington during the quarter. Palmarejo and San Bartolome also had a strong quarter, with Rochester being the sole driver of an increase in cash operating costs to $11.38 per silver ounce.

Based on recent volatility or volatility generally in metals prices we have seen this year, Coeur implemented a hedging program covering our fourth-quarter and first-quarter 2014 production. With the goal of preserving all of the upside exposure to silver and gold prices while limiting the downside, we purchased put options covering about 20% of our expected silver production, and 35% of our expected gold production for the fourth quarter. We recently purchased put options with similar terms to hedge a portion of our expected first-quarter 2014 production as well. We'll continue to evaluate our cash flow protection strategy for the balance of 2014.

Now I'll turn the call over to Frank Hanagarne, who will take us through the third-quarter operational performance highlights.

Thanks, Peter. Slide 10 lists the third-quarter 2013 operational highlights and priorities for all four of our primary mines. Third-quarter 2013 production at our Kensington gold mine in Alaska was up 25% from the second quarter, and cash operating costs per ounce decreased 11%, mainly due to higher grades. We expect continued strong production in grades at Kensington in the fourth quarter.

Operating performance at our Rochester silver-gold mine in Nevada was affected by the completion of several expansion-related projects during the quarter. We expect significantly increased production at Rochester in the fourth quarter 2013, and in 2014, at lower cash operating costs than the third quarter. Production at our Palmarejo mine in Mexico resulted in a 6% increase in gold production and a 6% drop in silver production over second-quarter results. Recovery rates and cash operating costs improved for the third quarter.

Our San Bartolome mine in Bolivia had another solid quarter, with consistent production and cash operating costs compared to the second quarter. The mill expansion at San Bartolome is complete and is expected to maintain annual production levels of around 6 million ounces of silver for the next several years.

Turning now to the operating performance details of each of our mines, slide 11 shows third-quarter 2013 highlights for Palmarejo. 1.9 million silver ounces and 29,893 gold ounces were produced at Palmarejo in the third quarter at cash operating costs of $2.79 per silver ounce, a 14% improvement compared to the second quarter. Process recovery enhancements improved recovery rates for both silver and gold, and higher grades are expected for the fourth quarter. We have decided to temporarily delay completion of construction and commencement of mining in Guadalupe, which was initially expected to begin commercial production in early 2014. We are working toward replacing these ounces with lower-cost ounces from other areas at Palmarejo. By doing so, we expect to generate higher operating cash flow at Palmarejo in 2014 than we originally planned.

Turning to slide 12, San Bartolome generated $29 million in sales in the third quarter, down from $49 million in the second quarter, as excess inventory carried at the start of the quarter raised second-quarter metal sales. Third-quarter production was comparable to the second quarter at 1.5 million ounces. Cash operating costs per silver ounce were $12.80 compared to $12.89 in the second quarter.

Turning to slide 13, third-quarter production at Rochester was 595,268 ounces of silver and 4824 ounces of gold -- decreases of 29% and 49%, respectively, compared to the second quarter. Third-quarter production was affected by delays in completion of construction and permitting for the Stage III leach pad expansion. This caused cash operating costs per silver ounce at Rochester to increase to $35.83.

We expect a significant improvement in cash operating costs and production levels in the fourth quarter as the expansion projects are now complete. Crushing performance has already improved and following the addition of metal removal equipment to the crushing plant. In fact, September was a record crushing month at Rochester. Permits to begin leaching at the expanded area of the Stage III leach pad were received on September 30. Significant tons of fresh material went under leach at the start of the fourth quarter. We expect relatively quick leach cycles for this material, which contribute to a significant increase in produced ounces in the fourth quarter and throughout 2014.

Kensington produced 29,049 ounces of gold in the third quarter, a 25% increase from the second quarter. This contributed to an 11% [decrease] in cash operating costs to $988 per gold ounce in the third quarter. Average mill head grade of 0.20 ounces per ton was 11% higher than the second quarter due to the processing of higher grade stopes.

I will now turn the call over to Joe Phillips to discuss our development efforts.

Thank you, Frank, and good morning, everyone. Coeur continued to execute on its plan to tailor its capital programs in light of current low metal prices during the third quarter. As mentioned in previous quarters, we have successfully scaled back our capital spend to focus on high return and high-priority projects that's resulted in a 20% reduction in our forecasted capital spending for the full year. Still included in our capital programs were the completion of the San Bartolome plant process plant expansion, and the Rochester crushing and leach pad capacity expansion.

We believe prioritizing opportunities that offer the highest return and shortest payback has enabled us to manage capital spending without any long-term impacts on overall Company production or mine life. Based on recent exploration successes at Palmarejo, we believe we will be able to maintain current production levels from existing mining fronts, and postpone capital commitments for production extensions on projects such as Guadalupe, which we've decided to delay.

We're also pursuing a strategy of streamlining the Palmarejo plant and improving metal recoveries over a wider range of ore types and oxidation states. The feasibility study at our La Preciosa project is moving forward. We now have more clarity on how the new tax and royalty initiatives in Mexico will likely be approved. We began evaluating strategies to mitigate these royalties in our preliminary economic assessment by proposing the leasing of principle mobile and process equipment. We continue to evaluate the impact of this tax legislation, and refine strategies to optimize La Preciosa within the framework of the new legislation. Our goal over the coming months will be to continue improving project economics, and hopefully, make La Preciosa a compelling project to current metal prices.

Significant among our optimization strategies is to reduce the cost of power and water, which, together, represent 28% of our total projected operating costs. One bright spot in Mexico's new fiscal reform is it appears to further facilitate access to privatization of power projects. We feel this may provide an opportunity to reduce our forecast operating costs for the project.

As I mentioned last quarter, we are also expanding our understanding of additional identified veins within our current pit shell. These veins have the potential to reduce our overall strip ratio and expand mineable resources. Metallurgical testing to optimize recoveries and reduce plant operating costs was also commenced.

And now over to Hans Rasmussen, who will report on our exploration activities for the quarter.

Thanks, Joe. Good morning. During the quarter, our primary focus on exploration was in or near our operations. We had nine drills engaged at Palmarejo, Rochester and Kensington, with trenching at San Bartolome. Our primary focus in exploration is to grow resources in a sister operations team in expanding life-of-mine models. Additionally, our exploration crews worked on the La Preciosa feasibility study, and we reviewed several new opportunities in the Great Basin of Nevada and Utah, Mexico, Peru, Chile and Bolivia.

My presentation will highlight the exciting new drill results from Palmarejo, Rochester, and Kensington. For your reference, we have included a complete list of third-quarter drill results in the Appendix to this presentation.

As part of our strategy to extend the life of high-grade resources we are currently mining at Palmarejo, a major focus of our exploration efforts has been around the existing mine. Slide 20 shows several exploration targets along the 10 kilometer structural zone from the Palmarejo mine in the North to the La Curra Zone at the Southern end. Drilling in the quarter was focused at the Palmarejo surface and underground, Guadalupe underground and El Salto surface. A section view of the Tucson and Chapotillo pits on slide 21 highlights the results from Hole 93, located on the east side of the pit. This hole cut a mineralized north-south structural zone referred to as the Footwall La Prieta Zone.

Slide 22 highlights where Hole 7 cuts deeper into the Footwall La Prieta Structural Zone. These drill results demonstrate the presence of multiple parallel mineralized fault zones. We believe these could coalesce at depth to form a wider, single mineralized structural zone with similar grades to those being mined at our 76 and 108 Clavos. In the fourth-quarter 2013 and into early 2014, we will test this concept with additional drilling. If successful, this zone has potential to extend the open pit mine life at Palmarejo.

Turning to slide 23, during the quarter, drilling continued underground at Guadalupe and from the surface at El Salto Zone. Drilling also commenced on the southern end of Las Animas to extend known near-surface mineralization towards the recently acquired La Curra property. Assays are pending on the new core holes. We believe La Curra has near-surface mineralization and topography amenable to a future open pit resource model.

As shown on slide 24, the El Salto Zone continues to deliver good results from multiple near-surface stacks structural zones. Given their geometry, we expect additional drilling in this zone also has potential for a resource that can be open pit mined.

Now let's have a look at Rochester, starting on slide 25. Located in one of the most mining-friendly jurisdictions in the world, Rochester was another key focus of our exploration team. An updated reserve estimate was prepared for Rochester, removing all restrictions imposed by the former claims dispute. This update announced September 23, 2013 did not include data from the third-quarter drilling of stockpiles and in situ mineralization, which are expected to be reflected in a further update as of year-end 2013.

The Limerick Zone in situ drilling has been completed on 21 holes with assays pending for all except the first two. Hole 2 on slide 25 demonstrates favorable results from a near-surface intercept. Similarly, at Sunflower Ridge, near-surface results from the first hole are encouraging, and drilling is underway on the remainder of a grid of holes in that zone. Because of the excellent results from both these in situ targets, additional infield drilling will continue into 2014 in an attempt to bring these targets to resource status. We expect to complete stockpiled drilling by the end of 2013.

Now we move farther North to Alaska in our Kensington gold mine, starting on slide 26. Drilling during the quarter was focused on South Kensington, Kensington Maine, the Ann target, and the Jualin areas, with favorable results from all areas. Drilling in the main portion of Kensington both below and above the mining area continues to deliver positive results. Encouraging results were received from Holes 23, 24 and 49, for example.

Infield drilling continues to bring these new intercepts into the resource model. Located south of the Kensington mine in the same structural corridor is the Jualin mine area, as shown on slide 27. Vein number 4 was the focus of drilling this corridor, as weather permitted access from surface drill pads. Consistent with historic mining records, high-grade mineralized intervals were intersected with the first five holes completed this year. Based on these high gold grades, we believe the Jualin area has potential to provide high-grade feed to the Kensington mill in the future. We plan to continue drilling in early 2014.

Looking forward, our priority remains to expand the life-of-mine models at our four operations. We will update our resource models in the fourth quarter of 2013, and announce updated reserves and resources at year-end. Building life-of-mine will remain a priority also into 2014. Additionally, for the exploration team, given the current opportunity to acquire undervalued mining assets worldwide, one of the goals of our exploration efforts will also focus on building a balanced 2014 program consisting of new exploration targets, projects, and advanced projects.

Thank you. Mitch?

Thanks, Hans. As I said at the beginning of the call, we are focused on maximizing our net cash flow, maintaining operational consistency, and deploying capital where we can get the highest returns for our investors. We feel we have a solid plan in place to operate efficiently and to generate net cash flow amid the lower prices we are currently experiencing. Our diverse portfolio of operating assets gives us ample flexibility to adjust to the current environment. Over the medium and long-term, we still see more upside to silver and gold prices than downside, but we'll continue to manage the Company in a way that reflects the current reality that protects stockholder value and that strengthens the Company for the long-term.

Thanks again for joining us on the call today. Operator, we are ready for questions.

(Operator Instructions). Michael Dudas, Sterne, Agee.

Hey, Mitch, first question -- when you talk about the Rochester issues with the costs and delays and shift in production, and the Guadalupe decision that you made, how quickly can we get back to more normalized levels of production and cost at each of those operations? And does it have any impact on your guidance range that you put forth in September for 2014 production levels in gold and silver?

Yes, sure. I'll answer that first. And then, Frank, if you have anything to add that I don't touch on, feel free. But with respect to Rochester, we should see here in the fourth quarter probably, if anything, the pendulum will swing too far in the direction of lower costs that will be not quite in the normalized range, just because of the buildup there from what we did in the third quarter. But then going into 2014 and beyond, those more normalized ranges that are reflected in that three-year outlook, in terms of production and then costs in the $10 to $15 an ounce range, is where we expect to be with Rochester, beginning in the first quarter.

So, the fourth quarter will be a bit of an anomaly, just like the third quarter was on the other end of the spectrum. With respect to Guadalupe, we don't expect there to be any change in the production guidance range out of Palmarejo. It's more of just a decision to swap ounces out from Guadalupe for ounces that we've been able to, we think, identify this year through our 2013 drilling that actually are -- they're lower cost, they're higher grade, and they don't require the hauling back to the processing facility like the ore at Guadalupe.

So we'll get Guadalupe into a position in 2014 that will allow us to mine that whenever we feel it's an economic decision to do so. In the meantime, we'll focus on these ounces that we've been able to identify in the immediate mine area, and keep the production levels consistent with what we put out in that three-year outlook. But it's really a function of having that flexibility due to the exploration activity that we've been engaged in there.

So, we're pleased to be able to make that trade-off. And we're not going to mine ounces that aren't economic. Even if that did mean production would be lower next year from Palmarejo, we're not going to do things to just hit certain production levels if it doesn't make economic sense. But I think it's a sound decision and reflects our discipline around quality of ounces and not necessarily quantity of ounces.

Thanks, Mitch. And let me follow-up, turn towards the hedging. So, could you maybe elaborate a little bit on the strategy -- why $17? Is it because of how much you were going to pay for these options? You mentioned in one of the discussions about selling calls against, et cetera. Can you give us a little more better sense if this is going to be -- every quarter, we're going to be seeing this? And the level of production you're protecting, is there a magic number or reason why it's that number versus others? Just maybe a little more information, especially when you see a $17 price, you're like, whoa -- Coeur is protecting at $17, so people may be a little nervous about the silver price. But just I wanted to get more clarity on, that'd be great.

Sure, Mike. It's Peter. The choice of $17, you pretty much nailed it. Obviously, the price of the puts varies sharply as you move up. And especially on the put side of option pricing right now, given the amount of attention that they've had, we've picked a number that was close to an aggregate number that would allow us to continue operations. The percentage that we picked at 25% of silver and 35% of gold, the numbers that we think are something less than 50%, this was sort of a first step into a hedging strategy for us. And as I mentioned on the call, with a focus towards covering off the downside in a pretty uncertain metals market, and ensuring that the upside remains open for our equity holders, I can tell you that the reception, generally, in terms of conversations that we have had has been very positive.

In terms of going forward, our plan would be to continue this, as I mentioned on the call. We did similar levels -- again $17 and [$1150], not $1200 on the puts, on the gold puts. And it's a strategy we'll continue to go forward. Should we make a decision midyear next year to go ahead with La Preciosa, for example, and given that a significant component of our free cash is going towards funding La Preciosa, we would even consider increasing the level of output coverage, to make sure that that free cash flow is protected during a time when we're vulnerable over a construction schedule to get La Preciosa built.

I think that makes very good sense. I agree with that. And final question, Mitch, opportunities for non-core asset sales, purchases, maybe how the portfolio of some of your minority investments are looking? Is there any pruning or adding that we may anticipate between now and year-end?

Boy, when you say non-core asset sales, I think more about the opportunities that we're seeing coming over across our desks in terms of (multiple speakers) --.

Buying. Sure, sure.

Yes. Larger companies that are attempting to get rid of non-core assets. We are always -- we're trying to manage a portfolio of assets here, and anything we can do to improve the quality of that portfolio, we will do. And that doesn't necessarily mean just adding to the portfolio. We've got to always be seeking higher-quality, lower-cost in order to move the needle from a share price perspective.

That said, we don't -- between now and the end of the year, have anything that you should be looking to see happen from us on the sales side. I think, if anything, we are seeing some fairly distressed situations emerge that one or two look pretty interesting to us, in terms of price that would be paid, and value that could be generated from being opportunistic in what continues to be a challenging capital market. But in terms of pruning, probably not likely to see anything between now and the end of the year.

Excellent. Thanks for your thoughts, gentlemen.

Thanks, Mike. Talk to you later.

Chris Lichtenheldt, Dundee Capital Markets.

Just, I guess, to start -- congratulations on a good quarter at Kensington. It's good to see the cost there come down. And so, with the respect to that, do you expect the grade that you achieved in the third quarter to be repeated going forward for the next two quarters?

Frank?

Yes, Chris, this is Frank. We are projecting good grades in the fourth quarter, and of course, in the process of modeling out next year. And that's always our target. But we've enjoyed some very good grades compared to some of the prior quarters this year.

Okay, so it's fair to say the grades are going to be sustained at this higher level?

I would say that's a fair assumption, yes.

And how -- what are your expectations for recoveries at these higher levels, again? I think they dipped a bit in the third quarter. Is that -- should we expect slightly lower recoveries when grades are higher?

No. I wouldn't look at it -- our average, I believe, over time has been about 96%, and you can count on that continuing in the future.

Okay. Secondly, just looking at what you said about Guadalupe, was Guadalupe in the three-year mine plan that you released recently?

It was, yes.

It was? Okay. So I think you said next year any of the answers that come out from Guadalupe will be made up. Is that true for latter years? Or will there be potentially a bit of reduction in production estimates?

Yes, some of that's going to be a function of the modeling work that we're doing right now to incorporate all of the 2013 drilling data. But our expectation is that that production level in that three-year outlook that we put out would remain the same. Just the composition will change from Guadalupe to some of these more near-mine ounces.

Okay. That's great. Thanks. And then just lastly, looking at the production this year so far at Rochester, obviously you pointed out fourth quarter is going to be better and would have to be substantially better. Is there any way you could just provide us a little bit more clarity on maybe how many tons was stacked at the early end of the quarter? And sort of what grade and recovery you might be expecting to help get to that number, just to help us understand how that large production will be achieved?

Yes, Frank can take that.

Yes, Chris, while we were wrapping up that buttress project on Stage III in the third quarter, I can say this. The majority of the ore that was mined and crushed was delivered and placed behind this buttress as construction was taking place concurrently. We had in the neighborhood of 1.9 million tons of ore at a average grade of about 0.51, 0.52 ounces per ton silver going in behind that buttress. And until we have the construction wrapped up and then receive the necessary permit authorizations from the state of Nevada, we were unable to begin leaching on that.

So you've got that sitting in place, and commence -- leaching of that material has now commenced. And then keep in mind that we have other production coming, residual ounces from other parts of the Stage III pad. We're still producing significant ounces from Stage II and also Stage IV. So, as we have that as a good starting point for the fourth quarter, we continue to improve our crushing -- mining and crushing rates, and we're still delivering at a high rate out to those pads, with plans laid to get that material under leach right through to the end of the year. It more or less sets the stage for a good fourth quarter and a strong start to next year.

Okay, that's helpful. I mean, in our model, our forecast has typically been achieve sort of a quarter of the life-of-mine recovery within the first three months of having it in stock, just based on your -- the lead cycle. Is that a fair assumption? Or is this going to be a lot better materially, just the stock now in terms of leaching recovery in the early months?

You know, I think your figures are ballpark, but we have the advantage of most of this material that I'm talking about has been placed on top of liner. The ore thicknesses, while the volumes of ore are quite large, the depth of the liner and seeing that report through the Merrill-Crowe plant is proportionally a lot less than other parts of that pad. So we're expecting very rapid response in the leach cycle -- which is pretty close to what you were talking about.

Okay. Yes, maybe we could circle back off-line just because, on our math, we're having to see significantly more tons stocked in the fourth quarter versus the 2 million you discussed, something on the order of 8 million or 10 million tons. So, maybe if we could just circle back to understand why -- how you're getting to that production level, would be helpful.

I'd be happy to.

Thanks a lot.

Thanks, Chris.

Chris Thompson, Raymond James.

Congratulations on a good quarter. I think most of my questions have actually been answered by Chris there. So, I just wanted to, I guess, ask some particulars relating to Rochester and the cycle time. Maybe we can sort of -- I'll give you a call and we can discuss this off-line.

That'd be good -- hi, Chris. Sure.

Thanks.

Trevor Turnbull, Scotiabank.

Just again talking a little bit about Guadalupe and -- or sorry, Palmarejo and the guidance, not needing to change for some of the future years. You were saying that the ounces that you'd originally slated to come out of the Guadalupe underground can be sourced out of Palmarejo a little closer to the infrastructure. Can you give us a sense of kind of what your upside is on capacity there, in terms of being able to bring tons out from underground or from the open pit at Palmarejo? I know that the underground, it looked like you had a fair bit more tons coming out of the underground in Q3, relative to prior periods. Does that still have room to grow? Or is that kind of the steady-state for Palmarejo underground?

Yes. Trevor, what you're seeing there in the third quarter is really us managing the whole mining process and maximizing grade that can be delivered to the mill. But our capacity to mine underground is still in a range between 2000 to 2500 tons per day, and then anywhere from like up to 6000 to 6500 tons per day in the open pit. So, in a quarter where you see those numbers shift a little bit off those kind of benchmarks, it's us trying to control costs and manage our grade being delivered to the process facilities. But the capacity of what we can do out there has not changed.

And how much throughput can the mill do?

It's good nominally for 6000 tons a day, but we can push into that 6500 ton per day range.

Okay. And then kind of with respect to Guadalupe and the decision to defer, was some of that potentially related to the new mining legislation and the fact that royalties have materially ticked up there, going forward in Mexico?

Well, you know Palmarejo is -- we're lucky to have such a world-class asset where we can -- where we have some flexibility. And I'd say that the decision was more just a pure economical one. Guadalupe has developed over the last couple of years with the higher price deck, and running the economics of Guadalupe at current prices, it loses money. So, for us, it became then a pretty easy decision to focus then on what has exploration been able to give us to offset those ounces. And with the added benefit of reduced capital, since we won't be completing everything at Guadalupe next year, that will allow us to cut back $15 million or so in capital.

And then the costs, the operating cost side, there's about a $17 million delta between the operating cost profile, if we had those Guadalupe ounces in there, versus mining closer to infrastructure and higher grade there around the mine. So, kind of a typical trade-off study. And like I said, we're lucky to have the flexibility to make those kinds of trade-offs and decisions, and we made it based on solely economics.

Right. And so is the -- I was going to ask something along the lines of kind of what silver price would you like to see to revisit that? But I assume that's probably the silver price you were using kind of for those studies. If you get back to those levels, things should -- you'd want to do a trade-off, I guess, based on exploration success at Palmarejo, but would it be that kind of silver price that we're talking about to revisit?

Yes. You know, mid-20s, not too far off from where we are, say, [25, 26] would put us in a position then where we have some interesting scenarios to assess in terms of how much ore from Guadalupe would we want to combine with other ore sources, and then we can really get into some NPV maximization analysis and make the right decisions.

Okay. And then I had a question, I guess, also with Palmarejo. Kind of looking at the carrying value on these guys, the lion's share seems to be more on the mineral interest versus the mining property breakdown for Palmarejo. Has Guadalupe been considered more of a mineral interest, because it's not in production, than mining?

Yes. It's -- the mineral interest piece is really reflective of our view of exploration potential. And hopefully, Hans was persuasive enough during his comments to demonstrate to you that, if anything, I think our confidence on the exploration side has -- continues to increase the more we drill. But the Guadalupe -- and I guess when we talk about Guadalupe, we need to be careful how we define that. Because as you see in those slides, there's Guadalupe Norte, there's Guadalupe, there's a series of deposits there to the south. But the immediate Guadalupe underground mine or deposit is not in that -- not carried in that mineral interest, primarily because all the capital that has gone into development there, it's carried just as the rest of the main Palmarejo operating area is.

So, with respect then to putting out new -- updating reserves resources at the first of the year, and in potentially revisiting these carrying values, does that mean that this decision of deferral at Guadalupe might not have to really result in any material change or write-downs for Palmarejo?

You know we'll have to -- we'll obviously go through that exercise in conjunction with our year-end. But to your specific question, no, it doesn't necessarily mean that. In fact, it may mean an improvement to the overall value of the project looking at it this way. Again, really based on the exploration success that we're having.

Okay. I appreciate it, Mitch. That's all I had.

Thanks, Trevor.

Ilya Balabanovsky, Deutsche Bank.

This is Ilya Balabanovsky. I'm filling in for Jorge Beristain at Deutsche. Thanks for taking the question. It's a fairly quick one. Have you quantified the impact of Mexico's new tax and royalty terms on La Preciosa's net present value, at least as it stands under the existing development plan?

Yes. Hi, it's Mitch here. Of course, we take a look at that, but we're very hesitant to put any numbers out at this point until something is actually law, and we can see exactly how things are defined, how things are calculated, what's included, what's excluded, what's deductible, what's not. But you know we'll continue to follow very closely, obviously, the progress of that proposed legislation. And once we have the final details, then we can come back with some specifics around the impact. But until then, I just think it's premature to throw out numbers.

Understood. Thanks a lot.

Thanks.

Garrett Nelson, BB&T Capital Markets.

Most of my questions have been answered, but I did want to ask about the funding of La Preciosa, if you do choose to move forward with construction following completion of the feasibility study, and if silver and gold prices remain at the levels we've seen recently. I'm just trying to get a better sense of your financing options there. Would you consider entering into a royalty agreement to help fund development?

Yes, I don't think that would be necessary -- it's Peter, Garrett. Given the capital costs is around $350 million, we're pretty comfortable with some combination of cash flow on our balance sheet, free cash flow, and perhaps some modest additional debt to fund mine construction, and then capital lease financing for mining equipment. But we're pretty confident we can do it with our internal resources, and perhaps a small debt increment to fund capital costs for La Preciosa.

Okay. And then how much revolver capacity do you have?

$100 million. It's undrawn.

Okay. And then I wanted to ask about the share repurchases. How much capacity remains on your existing authorization on the $15 million (multiple speakers) --?

We're about halfway through it right now. So, it was $100 million program; $50 million basically remains.

Okay, and that's all I have. Thank you.

Thanks, Garrett.

Zach Zolnierz, GMP Securities.

Thanks for taking the question. Really just a quick one. And it relates to a comment you mentioned earlier on the call that I thought was interesting, regarded -- regarding M&A. I think you mentioned you're seeing some fairly distressed situations emerge that could look interesting in terms of value. And I guess I'm just wondering if you could maybe elaborate from a high level what it is you are seeing? Is this on the gold side, the silver side? Maybe regional? And from your perspective, are you more inclined to do something bigger that requires financing? Or are you thinking more in terms of like smaller deals?

Yes. I think it's fair to say that you look across the spectrum, and for different reasons, you see -- we're seeing more opportunities across that spectrum. The early stage exploration companies who have sort of hit a wall financially has given us a fairly steady flow of new earlier stage. And I think Hans mentioned the locations of some of those. And I think we do -- over the last few years, we have been fairly heavy on the brownfield exploration and fairly light on the earlier stage. And there are some opportunities I think that are interesting enough for us to bring in and balance out that mix a little bit, and take advantage of some of these situations on the early stage.

We're also seeing then a pretty steady flow of what I'd call late stage development companies that have a resource, maybe have a PEA, but no real pathway to seeing that asset into production. And, there, it's really -- for us, has to be the right jurisdiction and it has to have the right return criteria, and it has to be straightforward and clean enough to be an asset that's not going to add to the risk profile of the Company. And those, I'd say there's more of those in the gold side that I'm seeing, or primary gold, than a primary silver. But I think that's probably just a function of the fact that there's more primary gold mines and -- or project than there are primary silver projects.

And then I think the third bucket we're seeing is some of these non-core producing assets that larger companies are seeking to dispose of. And those kind of run the gamut, it seems, in terms of jurisdiction and cost profile, and stage of asset. But -- and they're typically not the -- for good reason, they're being shopped because they're not the best assets. And so, I'd say the quality of those producing assets that seem to be available are a little lacking from our perspective.

But there's a lot to look at, that's for sure. And we're being very selective and very mindful of where and how certain situations can fit into our overall portfolio. You know, we're mindful of, for example, La Preciosa and the timing of La Preciosa, and we don't want to stack ourselves up with a bunch of capital obligations and development projects that are all on the same timetable. We need to allocate things across a pipeline timing-wise, so that, sequentially, we have a good steady balanced mix. And so I don't know if those comments help, but that's what we're seeing.

Yes, yes, I appreciate it. That's very helpful. Thanks.

There are no further questions. I would now like to turn it back over to Ms. Bridget Freas with closing remarks.

Okay. Thanks, everyone, for joining us today. We look forward to speaking with you again in early 2014 to discuss the fourth quarter.

Thanks, everybody.

This does conclude today's conference. Thank you for your participation. You may now disconnect.