Coeur Mining Inc (CDE) 2014 Q1 法說會逐字稿

Good morning, my name is Chris and I will be your conference operator today. At this time I would like to welcome everyone to the first quarter 2014 financial results conference call. (Operator Instructions). Bridget Freas, Director of Investor Relations, you may begin your conference.

Thank you, Chris. Welcome to our first quarter 2014 earnings conference call. I'm Bridget Freas, we have posted slides to accompany our remarks on our website at www.coeur.com

Please review the cautionary statements and the risk factors in our 2013 10-K and first quarter 10-Q for risks and uncertainties that could cause actual results to differ from today's forward-looking statements.

Joining me are Peter Mitchell, Frank Hanagarne, Joe Phillips, Hans Rasmussen, and dialing in from London is Mitch Krebs. Mitch, please go ahead.

Thanks, Bridget. Hi, everybody, thanks for dialing in. I think a key takeaway from our first quarter is that the Company achieved its production targets at costs that are tracking below our full-year cost guidance. We're seeing a greater level of consistency from our operating mines which is something we have stressed is a key objective for us. Another key, obviously, is to keep that going throughout the rest of the year. We announced our first-quarter production results about a month ago on a silver equivalent basis compared to last year's first quarter Palmarejo increased 10%, Rochester was up 6%, San Bartolome's production was down slightly and Kensington's production was consistent with the first quarter of last year.

I would like to focus on 3 areas from our first-quarter results that we announced last night, costs, cash flow, and liquidity. I will start with costs. Our first quarter all-in sustaining cost per silver equivalent ounce were down 4% to $19.12. Now, this is a companywide number which means Kensington is included in that calculation on a silver equivalent basis. So that is an inclusive all-in number for us. In there is this year -- in this quarter was $0.75 an ounce related to feasibility study related costs that we incurred during the first quarter. It also incorporates all of our capital expenditures from the first quarter which totaled $11.9 million. We have some good disclosure in the back of the release and in the 10-Q on how precisely our all-in sustaining costs are calculated. Our costs applicable to sales per silver equivalent ounce at our primary silver mines was $13.25 in the first quarter which is down 6% compared to a year ago. Mostly by a 24% reduction over the fourth quarter at Rochester to $12.67 per silver equivalent ounce, which is the lowest they have seen in more than 2 years.

Now, I will talk about cash flow. Despite a 33% lower silver price and a 20% lower gold price we still managed to generate about $15 million of operating cash flow before changes in working capital during the first quarter. Our capital expenditures dropped off significantly which puts us on a full-year run rate for CapEx that is well below our 2014 guidance of $65 million to $80 million. Palmarejo, Kensington, an San Bartolome were all cash flow positive during the quarter and the only reason Rochester wasn't is because it's pad inventory increased by $12.4 million during the quarter as we keep building up the amount of material there under leach. Kensington's cash flow was its highest in 3 years during the first quarter.

Now, in terms of liquidity we ended the quarter with nearly $320 million of cash and equivalents and short-term investments, that puts our net debt at approximately $145 million. I think our balance sheet is straightforward and flexible with just a conservative level of debt on the balance sheet. This flexibility and liquidity allows us to weather a future deterioration in prices should that take place. And it also allows us to be opportunistic should a unique opportunity come along that can strengthen the Company's overall portfolio of assets.

Although we have had a solid start to the year our share price is down over 20% year-to-date. We believe the price weakness that we have seen has been driven by investors concerns in three main areas and I would like to just say a couple of things about each. One is the mine life and profile at Palmarejo and the impact the Franco-Nevada gold stream is having on that mine's cash flows. I think a second concern is Rochester's performance and how is that ramp-up going. And then I think the third one is what are we going to do about La Preciosa, are we going to move ahead on that regardless of economics or are we going to defer or delay that project. We will have more to say about each of these areas as the year goes on but I do want to hit on each of them for a couple of minutes each.

Let's start with Palmarejo, costs are trending down there the presentation I gave earlier this week at the European Gold Forum in Zurich broke out Palmarejo's costs per ton, going back I think to the second quarter of last year. We have included that slide with the first quarter cost information in our slide deck there today. It shows some really positive trends, open pit mining costs have declined about 16% over that period of time down to $1.47 a ton. Underground mining costs have dropped almost 30%, down to about $37 a ton and our processing costs have declined about 15% at Palmarejo to approximately $23 a ton.

So these are great accomplishments, our team is doing a great job obviously it will help the cash flow out of Palmarejo but it also allows us to apply those lower costs in particular to the Guadalupe deposit and take a fresh look at the economics of mining Guadalupe under a more limited development scenario. And obviously bringing Guadalupe back into Palmarejo's mine plan in a way that is economically feasible would be a big deal for us. As you know, Guadalupe contains over half of Palmarejo's total reserves.

We also included a slide in today's presentation that breaks out the reserves at Palmarejo between open pit and underground and then between the main Palmarejo mine and Guadalupe, so you can get a good sense of what contribution Guadalupe has to the overall reserve profile.

The second thing I would like to point out about Palmarejo and as we think about the future of Palmarejo is the fact that historically open pit operations have been the primary source of mill feed but we make a lot less money from the open pit than we do from our underground operation there. In fact, we get about 90% of our operating margin from the underground. So by reducing open pit mining rates the mine, we think, will be more profitable, we think recovery rates will increase with less oxide material being fed into the mill and our costs, both processing costs as well as overall mining costs should decline. We will have more of these details solidified here still in the second quarter and that will be incorporated into a longer-term mine plan for Palmarejo that we look forward to sharing with you. And we will file an updated technical report by the end of the second quarter. So I think that is going to address one key area of concern, it could be, I think, a real catalyst for us.

And now, as far as Rochester's performance goes we're on track there versus our plans so far this year. Obviously costs are down, production is rising. In fact, April's silver production was Rochester's highest in almost 6 years. Almost 40% of our Company's silver equivalent reserves are at Rochester which we think is a great thing and really sets us up nicely there for the next 20-plus years. It is obviously in a great jurisdiction, it has relatively low capital requirements, costs are declining and it is a high ROI project. We intend to demonstrate to you all during the rest of the year that Rochester is really dialed in and is meeting our and maybe even exceeding all of our expectations.

Now, on the La Preciosa topic, we're beginning to pull together now the results that are coming in from all of the feasibility study work that has taken place since last summer. It is going to end up being a much more attractive project than what the PEA showed last June. That doesn't necessarily mean we feel pressured into fast tracking its construction, we will only advance La Preciosa when we are confident that we can realize an appropriate return to compensate our stockholders for the risk associated with a major development project like this. In addition, we won't start building any new mine unless and until we have the construction costs pre-funded and on our balance sheet. We have seen that movie play out before where you don't have that and that never ends well, it seems.

One last comment just to hopefully put a fine point on it, we are very sensitive to the market's appetite right now regarding big CapEx projects that can really stretch a company's resources. So we will be taking that all into consideration here as we pull together the results of the feasibility study that regardless of what we do we will share those results so everyone will know exactly what we feel we have there at La Preciosa.

It is clear to me and, I think, to our team that we are operating more effectively at all levels of the organization, our planning, our execution, our safety performance, and a level of coordination and focus on the opportunities we have at our Company and the challenges we face. With a set of operating assets that are performing better and better with a flexible and liquid balance sheet and costs that are clearly declining I am excited about the value and the certainty and the clarity we can provide our stockholders during the remainder of the year.

With that, thanks again for joining us on the call today. And, operator, we would be happy to take questions now.

(Operator Instructions). We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of John Bridges from JPMorgan. Your line is open.

Hi, Mitch, everybody. Thanks for your comments on Palmarejo. I was just wondering to what extent can you identify a resource base there at Palmarejo? I know you've put what you've got there but what sort of life can you see at the project based on your understanding of the thing at the moment?

Yes, I will give you my view, John, and then Hans, maybe you can chime in from an exploration perspective. But I think our current reserve in the open pit is right now a little less than 2 years of end life there. I know that sounds alarming and short but when you think about in the context of my comments that we only get about 5% of our operating margin out of the open pit, how long the open pit does or doesn't go doesn't really move the needle a lot if we are driven primarily by how do we maximize our cash flow and less so by how many ounces do we produce.

When you think about the underground being a 2000 to 2500-ton per day scenario and with what we have at Palmarejo in reserves, what we have at Guadalupe in reserves, and then what we have in M&I at both Palmarejo and Guadalupe, I can see a very long mine life as a 2500-ton a day, higher grade, higher-margin underground operation. With all that said, I would say we have only now this year, John, done, I think, a really good job of integrating exploration and operations to really coordinate at Palmarejo and prioritize what is it that the mine needs to be successful in the short-term, in the medium-term, and in the long-term.

I think in the past we have only scratched the surface of what is there at Palmarejo. Now, we finally have a much better prioritization as far as where we have drills, what we're drilling, why we are drilling them in terms of targets. And, Hans, maybe you want to share a little bit from there in terms of what we are looking at there, some of the targets, and maybe why we haven't drilled them up until this point?

Of course, this is Hans. The focus has been to extend the open pit mine life despite the economics that Mitch just mentioned, simply because we want to exhaust every possibility there before we make any decisions. In our Q3 2013 release we alluded to some results from a zone at Palmarejo and we continue to get good results from that zone today. So we focused on that zone the last month or so, those results will come to bear fruit I think in the next couple of months in terms of what we see as a future resource there in the pits. But as Mitch mentioned, we are getting much more joy from underground. So, as we have got two rigs operating in the pit, exploring the pit we have advanced to 3 rigs now exploring for the future underground resources that would represent something like a Clavo 76 or Clavo 108 that we are mining right now. That is our priority for the remainder of the year and those are abundant targets up and down the trend. It is a 7-kilometer trend, 70% of the project has not been explored. So we have got a lot of work to do but we've got a lot of good targets to continue to explore.

John, does that give you what you were looking for?

Yes. That is encouraging. Thanks, I will take another look at your slides. Thank you.

Thanks, John.

Your next question comes from the line of Chris Thompson from Raymond James. Your line is open.

Thanks a lot, good morning, Mitch. Congratulations on the quarter.

Thanks. You made it on, that is good to hear.

I was waiting. Two quick questions. One on the expansion of [mill] (inaudible) -- San Bartolome, can you just comment on that quickly how is it going there?

Frank, do you want to take that?

Sure. Hi, Chris, this is Frank. We completed the installation of the equipment to raise our throughputs at San Bartley (sic) last year, cleaning up a few ancillary parts of that project in the first quarter of this year. We basically installed a cone crusher in order to feed the mill with a smaller size distribution of rock. The crusher is operating well and we are seeing increased rates as we go forward. Everything seems to be working according to plan, in my view, at this time.

Great. Can you remind me again what is the plan as far as throughput at the mine?

We want to maintain a 6 million once per year in that nominal range of solo production per year. We are going to be seeking to be between 4500 and 5000 metric tons milling rate per day to achieve that at the grades that we have.

Are you at that point now?

Yes, we are here and there, we just manage everything comes down to the matching up and being in balance with the mine rate. And that ebbs and flows just a bit. We do have a stockpile that we draw from but we are seeing good milling rates as required to maintain our plan production.

Great, thank you. Just quickly on Rochester. Two things I noticed, a good grade, is that sustainable at that sort of level?

The entire ore body in the reserves that we are working with are pretty consistent grade of material for both gold and silver, of course much lower on the gold. We do get into periods whereas we mine in the stock piles we see intermittent materials coming out, that a grade will spike upward, these things are sustainable over days, if not a week type time frames. Just across the board it is a pretty consistent ore body as the grade has been distributed in there, but the primary metal is silver.

Okay, thank you. And then the final question on Rochester again, impressive costs there on the unit cost per ton basis, what should we be modeling, I guess, moving forward?

Frank, do you want to take that?

Yes, sure. On a cost per ton basis we continue to push our ore placement rates up in our day-to-day performance and that means that we are also mining at higher rates. We are currently mining more in the open pit area than we have in the past, shifted that distribution between stockpile and mine just a bit, which is favorable to our cost per ton and we will see that continue throughout the remainder of the year.

Okay. All right. But would you say that the cost that you guys delivered on a per ton basis in Q1, is it realistic to model that on a forward-going basis?

I think it is more likely that you will see that decrease through the remainder of the year. And I am going to say within the range of about $0.10 per ton.

Okay. Perfect. All right, guys, thank you very much.

Thanks, Chris. See you.

Your next question comes from the line of Chris Lichtenheldt from Dundee Capital Markets. Your line is open.

Good morning, guys. And thanks, Mitch, for the strategic outlook, that is helpful.

Hi, Chris.

A few questions, I wanted to go back to Palmarejo for a minute, you talked about what is looking like it would be a shorter reserve life, you mentioned Guadalupe, when we look at the slide that you provided with respect to how much of the reserve Guadalupe accounts for, in the underground the grade there that you hold for silver and gold are actually a little bit lower than what you have for the Palmarejo underground. Even after the cost reductions you mentioned this quarter after paying the royalties, there is still no free cash flow there. So when you talk about Guadalupe, what allows you to contemplate that as a solution to lengthening the reserve life? Is there some improvement there that you think you could generate cash flow from that area? What would have to change?

Yes, I will answer that and then, Frank, maybe you can fill in any gaps that I leave. I think looking at that, Chris, under more -- I think, in my comments I said a more limited development scenario. So really pulling in a mine plan at Guadalupe that focuses on the higher grade, core of those reserves to at least allow for us to justify from an economic perspective a more limited development plan to get in there. Not sterilizing anything but setting us up so that we can mine some of the higher grade components of Guadalupe, doing it at lower costs. And then seeing those higher recoveries out of the processing plant. Those are the key metrics there that we think would lead to a much better outlook than what we were looking at say late last year when we made the decision to defer Guadalupe.

Clearly the royalty is a big piece of where cash flow from Palmarejo goes, there is no denying that and that is a big focus for us. Is trying to think through how maybe that can be improved in a way that could be helpful to us, to Palmarejo, and ultimately to Franco-Nevada. So that is on our minds and obviously that is stating the obvious that that is a big deal there at Palmarejo and something that we are mindful of and are thinking about as we look at what the future of Palmarejo looks like.

And does that higher grade opportunity at Guadalupe make more sense, or in your mind is that something that occurs after the minimum 400,000 ounces are delivered to Franco?

We are still working on that, Chris, and that will be a key part of what we will have to talk about later this quarter in terms of timing. There is a few layers to that, right, in terms of the open pit and like Hans was talking about some of the drilling where we're having some good results there in the pit. But if the economics of that surface mine extend then that sort of factors back into our decision-making and around the timing of Guadalupe as well. We need to make our choices around what is going to maximize the cash flow and prioritize our efforts that way. Frank, did I leave out any big chunks?

No, I think you covered it pretty well. Can you comment on that, Chris? Is there more to?

No, I think the question is answered for now and we will look forward to the technical studies to see how it all may play out. Particularly how many tons you have at the higher grade because at these grades it doesn't look like potentially enough to pay all of the bills once the royalty is paid. I will move onto my next question, at Rochester looking at the balance sheet I think you had some $94 million of inventory, ore on the leach pad in inventory at Rochester primarily, I presume. Can you tell us how many ounces that is?

Peter, Frank, do you guys have that?

I do not have the answer to that, Chris. We can find that out and certainly respond.

Okay, I will circle back off-line. And then lastly, Mitch, maybe I will just ask you again on Preciosa, you talked about potentially that starting to look a little better as the studies come in, is it too early to put some framework around that in terms of pricing? Is it something that at $20 silver you could envision being economic or it is still a work in progress?

Let me just say for now, I will take the easy way out on that, Chris, and say it is still a work in progress. But we are very reality based there. It is a $20 silver price environment right now, at best, that we used a $25 silver price, as you may recall, in the PEA last June. So the work that we have been doing on that project has been around how do we make, or can we make, La Preciosa economic at something less than $25 and closer to current spot prices. That has been the focus and that is what we are trying to do and we will see where it all shakes out.

But I guess the biggest point I want to make on La Preciosa is to address the concern out there I think that we are so committed because we made this acquisition last year of Orko Silver and that we immediately feel like we have to march forward into the next step right away, which would probably require some additional capital because with $320 million of cash on the balance sheet and at least the PEA CapEx for La Preciosa being $348 million. The math doesn't work. I can see why people would be concerned about that and so I wanted to just try and make it clear to people that we are going to follow this feasibility through to the end but we are going to make a decision that is based on grounded and discipline, I guess is a good way of saying it.

Okay, that is helpful.. Thanks, that is it for me.

Your next question comes from the line of Matt Vittorioso from Barclays. Your line is open.

Good morning, guys, thanks for taking my question.

Hi, Matt.

Back to Palmarejo and Franco-Nevada, I certainly appreciate the detail around some of the efforts that you are making there to improve cash flow. I am just curious, if the mine were to continue to be cash flow negative after royalties what is your recourse with regard to Franco-Nevada? I'm just not sure how that agreement works. Can you just tell them we're not going to continue to operate at a cash negative position? Are you forced to continue to produce until you meet the minimum 400 -- or the minimum balance there? How would that work, is there anything in the agreement that allows you to sort of negotiate with Franco-Nevada given the cash negative nature of the mine right now?

Good question. I will take it and you guys, Peter, Frank, or Casey, anybody pull me back if I am going in the wrong direction. That 400,000 ounce minimum, Matt, is essentially a corporate obligation and that is why it is accounted for the way it is. Sits on our balance sheet as essentially almost like a debt. And so if we stopped mining tomorrow, the remaining amount of that minimum obligation, which at this point I think is down to about 120,000 ounces, that would be owed to Franco-Nevada. Now, once we chew through that 120,000 ounces and we are beyond that minimum then if we chose -- if the prices and costs and such were preventing us from showing positive cash flow and we chose to put that mine on care and maintenance, that gold stream would just sit there on that asset waiting until and if the mine would go back into production. But there wouldn't be any -- it wouldn't go anywhere, but it would not be -- there wouldn't be any obligation to pay anything if we weren't generating any gold production.

The only thing that I would add to that, Matt, it's Peter, would be that as Mitch described we would have to chew our way through the minimum ounces, 124,000 was the amount remaining at the end of the first quarter but not only is that and aggregate obligation there's also actually a 50,000 ounce per year obligation as well that is tied to that corporate obligation.

Great. Thanks for that color. Just a high-level cash flow question, as you mentioned the CapEx required for La Preciosa and the sort of difference between the funds you have now and what would be required for that project, and certainly your desire to head into the project with the funds already on the balance sheet. What are your thoughts for raising additional funds for the project? And along with that, you had some working capital build in the first quarter, what are your high-level thoughts for cash generation from your existing assets for the remainder of the year?

I will start, Peter, you feel free to chime in too. We don't have any appetite or interest right now, Matt, in further cashing up, the only way that I think we would go down that path is if we got some great surprise on La Preciosa's capital costs to where it was reduced from that PEA level to a point that not only made it an easier bite, but also propelled the economics to be so positive that it justifies being cashed up to fully fund the capital. I don't know if that is -- how likely of a scenario that is, but I wouldn't look for us to be tapping into any capital markets throughout the remainder of the year.

In terms of just cash flow, from operations and net cash flow, at these prices, like today's prices, our change in cash sort of from 12-31-13 to year-end 2014 should be about a push, a lot of that depends on where we end up on CapEx and how much additional exploration we end up funding above and beyond what we already have budgeted. That is more of a success-based model this year that we will only fund additional exploration if the results justify it. I don't know if that gives you some sideboards but that is how we see it as we sit here today.

That is helpful, thanks, guys. Appreciate that.

Your next question comes from the line of Garrett Nelson from BB&T Capital Markets. Your line is open.

Thanks. Hi, Mitch. Hi, everyone.

Hi, Garrett.

Most of my questions have been answered but I just want to ask about the higher amortization guidance which you said was mostly due to a revised estimate of the impact of the impairment charge you guys booked in Q4. This guidance implies a step up in amortization in the final three quarters, can we assume this additional amortization will show up in financials at the Palmarejo and Kensington mine's because those are the assets where you took the impairment charges in Q4?

Peter, do you want to take that?

Certainly. Garrett, that is an accurate assumption, yes. Just to shed a little more light on essentially when we pulled our guidance together we were still in the calculation phase of determining what the appropriate amortization charge was going to be and that is really the sort of underlying reason as to why that change occurred between the time we were providing our guidance and obviously the information that we released in the first quarter.

Okay. Thanks a lot.

Thanks, Garrett.

Your next question comes from the line of Dave Katz from JPMorgan. Your line is open.

Good morning, I hope you all are well, I appreciate the details up to this point. I wanted to come back to one of the per ton questions, or per ounce, pardon me, questions on cost with regard to Rochester. So the ore tons placed decreased a fair amount and sequentially heading into 1Q, looking out at the rest of the year how do you expect that to drive the per ounce cost? Because it sounded like you guys were saying that the per ounce cost should continue to decrease through the rest of the year. Did I hear that correctly?

Frank or Peter, do you guys want to take that?

In the first quarter the tonnage placed was off a bit from what we had achieved in the fourth quarter of last year. Plans are to push that back up to higher levels so we will be putting more ounces out there. More or less are relatively constant grade for gold and silver. So on a unit cost basis we should see some improvement there.

Okay. So then if I look at the cost from the first quarter, the production cost applicable to sales, and I annualize that, that was around $428 million on an annualized basis but yet you are guiding to $500 million to $530 million, at Rochester you are indicating that the costs, understood the total cost should go up but at least the per ounce cost is moving down. What is causing the rest of the movement in annualized total cost to go up? I guess on the low end of guidance $25 million per quarter?

That is a good question and we thought about that in the quarter-end process here in terms of how to handle our cost guidance and whether we should move it down or not. I guess we just came up, David, on the side of the coin that suggested let's just leave it as is, this company historically has had a hard time meeting and beating guidance. If we get into the second half of the year and that still seems like that is too high, then we can pull it in once we have fewer months of the year left. I just would hate to see us do something now on pulling back guidance or pulling down our cost guidance and then something unforeseen comes along and the we have got back into that trap of having to then adjust the guidance again. And I just want to keep it at an achievable level for now and when we have a higher confidence level then we will make the necessary adjustments.

Okay. Understood. And then we had read some reports that the Bolivian President labeled contracts between cooperatives and foreign firms as, I believe the term used was anti-national, and he said that those involved, I think the Bolivians involved in signing them, should be tried for treason. Would you have any color on that and whether you have any of those type of contracts? And in that environment of worsening rhetoric, how you guys managed to maintain a copacetic relationship with the government so as not to suffer any economic blow to your mine claim?

Yes, it has been an interesting time in Bolivia. There are elections this fall, I don't care where you are, that drives funny behavior in any country it seems. But President Morales, his administration, the private sector, the unions, and the local cooperatives, we have all collectively been working on an updated, revised mining law for the last 3 years and that is getting some final pieces put on it. I wouldn't be surprised if Congress there passes the new mining law here in the next couple of weeks and then ultimately it gets signed into law by the President prior to the elections this fall.

There has been a dustup as the negotiations on the mining law progressed the cooperatives and the government, and this is all in the public domain, were having some challenging discussions and this topic of validity or legality of old contracts that cooperatives had signed with private companies became a hot topic. And they listed a whole bunch of different contracts that cooperatives have signed over time that they are calling into question. And there's actually two that were on that list that are ours, our subsidiary called Manquiri and the whole treason thing that you mentioned there was really -- it is not something that they are focusing on the private companies like us or Manquiri, our subsidiary there, they are more focused on the people who entered into those contracts from the cooperative side or from the COMIBOL side, which is a state owned mining company there.

I don't know what is ever going to come out of that, if anything, but there was some news about that, there's been some discussion down there about it, but it doesn't seem to be a key driver of anything. I think the bigger issue there is the mining law progress, and Morales has been very positive on May Day this year, which historically in that country has been a day of some unpredictable decisions. He was touting the need to not do any, kind of, nationalizations ever again in Bolivia. He seems to have really turned the page on that concept which obviously is a positive for our industry as well as others. So we continue to just do the same things that we have always done. We work well with the cooperatives, we've got great community relations, our folks in La Paz are very tied in with the Federal Government and it is an open dialogue and one where I think we feel like we have a voice at the table, and a high level of trust and a fair amount of transparency. We continue to mine there and do well at it. But it does take a fair amount of time and effort on the part of a lot of good people.

Understood. But with free cash flow from that mine over the last 3 quarters at less than $12 million, even if any change to the mining law doesn't eventualize or manifest itself in a nationalization, it would seem that the cushion is relatively thin. Do you envision a situation, a change in the law that would make that mine uneconomic from the point of view of Coeur?

I don't, no. I don't. I think there could be, and I don't want to get into what may or may not be in the law, but everything I have seen there would be some tweaks to different things including potentially some taxes or royalty rates even, but it is not nailed down and none of it would be material in terms of impact to our cash flow there.

Okay, thank you very much.

You bet, Dave.

Your next question comes from the line of Mitch (sic) Thompson from Raymond James. Your line is open.

Hi, guys. I just have a follow-on question very quickly in on Kensington. I noted that your mill throughput there with 1800-ton a day, for the quarter. Again, is that sustainable, is that the desired throughput for the year?

Yes. Frank, tell me, fill in if I don't hit this right. But, yes it is, and in fact maybe a little bit more than that but that is a good run rate. I think where we will see a little bit of pickup is in the average grade I think in the first quarter, I don't have it in front of me, I think it was like a 0.18 ounces per ton and I think we will see a little bit of a -- the mine plan at least calls for a slight uptick in the average grade as we go through the year.

Right, would you say that is sort of more in-line with what you guys delivered last year? As far as the grade goes.

Well, the fourth quarter was certainly a bit of an anomaly in terms of grade. And I wouldn't benchmark off of the fourth quarter. But I think in terms of overall grade for the full year, 2014 versus 2013 we will be lower this year at that higher tonnage. And that is, like we've talked about, that is by design and we think that ultimately gets us more cash flow and more value out of Kensington. Frank, do you have anything to add to that?

No, I will just circle back to a couple of things. The answer to is the 1800 tons per day sustainable? The answer is, yes. In fact, we are permitted to process up to 2000 tons per day and when we average 1800 at those periods where we are actually up to very close to that 2000 tons per day milling rate. Any time that has to be supported by the mining rate that is sustainable as well.

If you think about this year versus last year, this year we are planning stronger production, mine plans are oriented around stronger production in the second half of the year but at the end of the year we expect to see something quite comparable to what was achieved last year.

Great. That is good. Thanks, guys.

No problem, Chris.

Your next question comes from the line of Chris Lichtenheldt from Dundee Capital Markets. Your line is open.

Hi, guys. One quick follow-up, the inventory you have on the leach pad that amounts to $94 million on the balance sheet, is that a run rate level now or will that actually accumulate further or should that be coming lower as you sell those ounces? Can you just answer that quickly if you don't mind?

Yes, certainly, it is Peter, that is certainly leveling off and we will see a modest drawdown, I think, over the course of the year.

Okay. Okay, good enough. Thank you.

Sure.

There are no further questions at this time. I turn the call back over to Mitch Krebs.

Okay, thanks. We appreciate your interest and I love all the questions, that is why we're doing these calls this way to leave as much time for Q&A and I think it is great. I appreciate everybody's time. And I am encouraged by the progress we've made in the first quarter but there is still obviously a lot of work to be done. We are committed to operating consistently and efficiently and we look forward to updating you on our progress on these key items over the course of the year. Thanks again for your time, have a good rest of the day.

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