Coeur Mining Inc (CDE) 2014 Q3 法說會逐字稿

Good morning, my name is Sean, I'll be your conference operator today. At this time, I would like to welcome everyone to the third-quarter 2014 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, Director of Investor Relations, Ms. Bridget Freas, please you may begin your conference.

Welcome to our third-quarter earnings conference call. There are slides available on our website to accompany today's remarks. Please review the cautionary statements and the risk factors in our latest 10-K and 10-Q for risks and uncertainties that could cause actual results to differ from any forward-looking statements made during today's call.

Mitch, please go ahead.

Thanks, Bridget. Good morning everyone, thanks for making the time during a busy reporting day.

We reported solid third-quarter operating results back on October 6. In that release, we reiterated our full-year silver production guidance and we raised our full-year gold production guidance due to the solid year our Rochester mine out in Nevada is having.

I'd like to quickly mention a few of the highlights from our third-quarter results we released yesterday. We've now reduced our full-year operating cost guidance by about $40 million compared to where we started the year. Our all-in sustaining costs per ounce dropped by over $1 an ounce compared to the second quarter.

And with less than eight weeks left in the year, we are confident that Rochester is on track to deliver double-digit increases in both silver and gold production for 2014 at materially-lower unit costs compared to last year. As many of you will recall, Rochester was a big question mark entering this year and with each passing quarter, I think we're putting that question to rest.

The development of the Guadalupe deposit at Palmarejo is advancing well ahead of schedule, which represents the beginning of a higher grade future at that operation. Coming into 2014, that future was also a big question mark. We expect to be mining 500 tons per day on average from Guadalupe in December and ramp that up to about 1,500 tons per day in the third quarter of next year.

Costs at Kensington declined to $937 an ounce like we said they would during the second half of the year due to higher grade ore in the mine plan. They were actually below $900 an ounce when you back out the one-time inventory adjustment. Also at Kensington during the quarter, we announced new high-grade structures containing mineralization with grades well in excess of the current reserve grade of 0.15 ounces per ton.

The addition of this new material at Jualin and in zones 10 and 20 located in the main Kensington mine, is expected to lead to unit cost declines and cash flow increases there. We will incorporate this material into an updated mine plan and provide it to you during the first quarter of next year.

Our cash balance declined by $21 million during the quarter to $295 million. It declined because we spent $12.4 million to repurchase a portion of our outstanding 7 7/8% notes at a discount to par and because we acquired two royalties during the quarter for a total of $13.8 million. Without these two items, we were net cash flow positive in the quarter.

Also G&A costs for the quarter dropped significantly again, this time by 9% after being down 32% in the second quarter to $8.5 million. We held two Investor Days in early October. Many of you on this call attended or hopefully listened to the webcast or reviewed the materials that are available on our website.

I want to take a few minutes to highlight what we feel were the main takeaways from those two days, because they do a good job, I think of reflecting where we're trying to go with the Company and how we're trying to get there.

The first is that three of our four mines have unique high return expansion opportunities that we're currently pursuing. We'll use some of our existing liquidity to fund those initiatives, which we expect will drive costs down and help make our Company more durable and resilient at lower prices. And those opportunities exist at Rochester, at Palmarejo and at Kensington.

So, first at Rochester, we've put a lot into getting Rochester on solid footing over the past couple of years, and I mentioned a couple of minutes ago what 2014 is shaping up to look like. And looking ahead to next year, we anticipate Rochester increasing at silver and gold production by double-digits again and lowering its unit cost by double-digits again due to higher crushing rates, greater efficiencies and higher grades.

If you're looking in at the slides we have posted, you should check up the cost per ton information on slide 13 for Rochester to get a better sense of the progress we've made there.

Looking into 2015, we also expect to receive permits during the second half of the year that will allow us to expand leach pad capacity yet again in 2016 so we can extend Rochester's growing production and free cash flow profile.

Now turning to Palmarejo, as we've talked about before, we're transitioning from a mine there that was historically focused on quantity of ounces produced to one that is focused on quality ounces and on maximizing free cash flow.

We anticipate that open pit production will end in mid-2015. That's a process that's already underway and we expect to complete underground production from the 76 and 108 clavos at Palmarejo that we've been mining since the mine started in early [2016]. We've reduced the headcount there since the beginning of the year by 75 people or over 8%.

Without a doubt the future of Palmarejo lies to the South, where development of the Guadalupe deposit is well ahead of schedule. Now Guadalupe contains a large reserve and resource and will be the source of much higher grade feed back to the Palmarejo processing plant going forward. It contains a total of 10.5 million tons of reserves and M&I resources and an additional 4 million tons of inferred resources.

And the mine plan we provided in July includes less than 30% of that material and reflects average grades from Guadalupe that are expected to be 25% higher for silver and over twice the average gold grade compared to what we're seeing currently in 2014. That same July plan showed us producing about 1,500 tons a day from Guadalupe by next September.

We estimate the development cost in 2015 to achieve this production level will be in the $10 million to $15 million range and that's on top of that $10 million or so that we expect to spend here in 2014 on Guadalupe development. And don't forget that Franco-Nevada is funding $22 million of Guadalupe's development costs as part of the recently renegotiated gold stream that closed early in the third quarter.

We're currently drilling some of the higher-grade inferred resources at Guadalupe to bring this material into reserves and we're actively pursuing ways we can expand and extend mining at Guadalupe beyond the initial plan we provided back in July, and we expect to have more to say about this in the first quarter. And the goal is to increase the production and cash flow profile coming from Guadalupe's higher grade ore over a longer period of time, while we work to advance other high-grade underground structures located near Guadalupe.

The best example of this is the Independencia structure located just to the north of Guadalupe, where we're having very good results. We expect to have an initial resource at Independencia at year-end and anticipate expanding the size of Independencia during 2015.

And then at Kensington, we're drilling and developing those higher-grade structures I mentioned earlier, and getting them into an updated mine plan. We expect drilling next year will further expand the size of this higher-grade mineralization and allow us to really reshape what the future looks like at Kensington. The third quarter served as another reminder of the impact a slightly higher head grade has on Kensington's unit cost and cash flow.

The second big takeaway from our Investor Days is the fact that the initiatives that I just walked through at those three mines are expected to significantly reduce our cost profile over the next few years. If you look back at last year, our all-in sustaining costs were around $20 an ounce. And we're targeting a 15% to 20% reduction as we get into 2017, which will dramatically shift this Company down the industry cost curve compared to where it has been historically.

The third big takeaway is the fact we have more than sufficient liquidity to support these strategic priorities, and withstand lower silver and gold prices. At the end of the third quarter, we had $295 million of cash and equivalents, about half of that cash is earmarked to fund these strategic priorities that I mentioned and then the rest is available for us to provide us with flexibility, and with the cash buffer.

As you all know, and as we're obviously aware we carry about $437 million of senior notes on our balance sheet. Those have a 2021 maturity, and they're unsecured and very flexible, no maintenance covenants. So, we have a long runway there in terms of how to deal with those notes, and we'll seek to de-lever over the coming years, especially after 2017 on the back of higher expected free cash flow.

And then, the final take away from our Investor Days is that we're really starting to see I think the benefits of the significant amount of organizational change that has taken place here over the past couple of years. Without a doubt, we have greater visibility, better planning, much better consistency in our results.

Many of you have told us that we have industry-leading transparency and disclosure and ISS has validated our leading corporate governance by awarding us the highest rating they give companies. I think a great example of the value of these enhanced capabilities is the process we went through to renegotiate the Palmarejo gold stream agreement with Franco-Nevada.

I have no doubt that we would have never gotten that done if it wasn't for the people and the planning capabilities that we now have here at Coeur that allowed Franco to get comfortable with the future of Palmarejo and Guadalupe.

Now as we're all aware, silver has dropped over 20% and gold has fallen over 11% since our last quarterly results call three months ago. $15 silver and $1,150 gold are levels that cause everyone in the sector to carefully think through the implications of these sustained lower prices and reassess priorities.

From our perspective, the initiatives I described at Rochester, at Palmarejo and at Kensington are expected to position Coeur as a much lower-cost Company capable of generating solid free cash flow over long mine lives. Our challenge and our opportunity is to use our liquidity to accelerate the execution of these strategic priorities in order to push the Company down the cost curve as quickly as we can.

With that, we'd be happy to take your questions now.

(Operator Instructions) Matt Vittorioso, Barclays.

I guess just on liquidity and looking into 2015, you talked about earmarking half of your cash for these internal growth initiatives and initiatives that get you down the cost curve.

I guess as we look out into 2015 at these commodity prices, it looks like you'll be burning cash. Can you just talk about how you're thinking about liquidity, cash burn next year and also investing to try to get down the cost curve -- what are your options to maybe increase liquidity and how you're thinking about that for 2015?

Yes, I'll start Matt and then Peter will chime in or anybody else for that matter.

But I think it's important to first start out by saying that our cost structure will not stay static in 2015 compared to 2014, because of the fact that we're sitting here with lower prices. So, you'll see our cost structure come down in 2015.

Our goal, obviously going through the budget process right now, is for our operations just to generate sufficient operating cash flow to cover G&A, to cover our interest and to cover most, if not all, of the sustaining capital. And then we would be dipping into our cash to fund some of these strategic priorities that will drive good things in terms of our overall cost profile over the long-term.

So, we don't see there being a need to increase liquidity. Where it will come from is off the balance sheet and from a lower-cost profile and that's operating costs, that's CapEx, that's non-operating costs, to get us to a point where we minimize that cash decline in 2015 and there'll be a similar story in 2016. And then 2017 is when we really start to see the benefits of these initiatives in terms of the lower cost, higher margins, higher grades and higher free cash flow.

Matt, it's Peter. The only things that I would add to that are it's a very dynamic process. Actually, the downdraft in silver prices and to a lesser degree, gold prices has been more extreme certainly since the end of the third quarter and our planning processes and the levers that we're pulling that Mitch alluded to in his presentation.

That's an ongoing process, and suffice it to say, there's a lot of things that we can do to adjust that cost position and really extend our liquidity through this next couple of years, which is critically important to get to that period where we're generating significantly more free cash flow.

That's very helpful and understanding that you are going through the budgeting process now, but maybe for the benefit of everybody on this call, as we think about looking at your silver equivalent production and your cost applicable to sales on that silver equivalent production on a per-ounce basis.

I mean you've been running in the $14 to $15 an ounce on the cost front. I mean, is there any sort of a big picture target you could provide for the next 12 months to 18 months? Where could those cost per ounce on the cost applicable to sales go? I mean, what is the opportunity there?

Yes. On a high level -- it's Mitch again. Production directionally next year on a Company-wide basis probably won't be that far off of where we look to be heading for 2014.

Kensington will be flattish, San Bartolome will be pretty flat. We've already said how Guadalupe and Palmarejo are transitioning, and then Rochester will be higher. So, you kind of net that all together and you won't see a wildly different silver equivalent production number out of us next year, but you will see those costs come down again meaningfully.

I think there is a slide in there today where we highlighted a few of the different buckets of reductions we've made this year that total something like $86 million. What we need to do is keep up on those efforts and try and do the same next year.

In terms of capital, that's obviously a big component to the equation next year. You won't see anything that's wildly different than the levels we're guiding to this year with some of that being just maintenance and some of that being the funding of some of these priorities designed to drive cost down. Does that help?

Yes, that's very helpful. And then just to remind us for -- so what's a good CapEx number to use for full-year 2014 and then you're saying it will be similar in 2015? Is it still sort of $65 million assure?

Yes. The range is $65 million to $80 million. That's a range that -- yes.

And then just one last quick one from me. I guess you did buyback some bonds in the quarter. Obviously, you're looking to conserve some liquidity. But, given the move in metals prices, those bonds have traded off and would you continue to look at those depending on where they're trading to, would you continue to potentially repurchase some of those in the open market?

It's Peter again. Not a precise answer Matt, but certainly balancing our needs for liquidity, our needs to fund the capital projects that we have in front of us to move our cost position down. But being opportunistic on the margin with our bonds such as we demonstrated in the third quarter with the $12 million of bonds we bought back is certainly something that we would entertain going forward as well.

It just makes sense, we are extremely conscious of the leverage levels that we have currently. So, finding ways to de-lever obviously growing EBITDA, but and in buying back the bonds from time to time. It's a great opportunity for us frankly.

That's helpful, thank you.

Chris Thompson, Raymond James.

I've got a bunch of questions here. We'll start off with Palmarejo. I wonder if you could just comment very quickly on the underground grades I think at the Palmarejo deposit. I think we've got a pretty good read on Guadalupe, but for the underground grades for next year, what should we be modeling?

Frank, you want to take that?

Sure. Hi, Chris, this is Frank. We are in underground looking at grades that should range between 170 grams and 190 grams per ton underground next year.

Okay, and on the gold?

They'll be in the range of 2 grams to 3 grams per ton.

Okay, perfect and on recoveries at the moment, I noticed that you achieved 83% recoveries on the silver for the quarter. Is this sustainable on an ongoing basis for the moment?

Yes. It's actually not only sustainable, but we're doing things that help to see improvements ahead still, although it's getting -- those incremental improvements become a bit smaller through our efforts going forward, but it is sustainable, Chris.

And I think we've talked before about how the feed into the Palmarejo mill is a mix of oxide materials and sulfide, and we continue to blend, maximize, optimize our blending. We've changed the flow sheet so that we can campaign different ore types through. Haven't had a chance to test that, ready to do so as soon as we encounter some additional oxide material a little later in the year and into next year.

We've expanded the Merrill Crowe circuit giving us the capacity to treat a lot more solution in the refinery. And we have converted a carbon circuit into just a standard agitation leach circuit. All these things in aggregate have added up to the kind of recovery increases that we're seeing right now and still looking to improve upon that further as we go ahead.

Great, Frank, thanks. Just moving on to Rochester. Just a read, I guess in the near-term obviously, you're enjoying obviously a lowering unit costs based on sort of economic scale here. Can we expect unit costs to continue to track lower than $15 per ounce silver equivalent?

That's certainly the goal -- it's Mitch, Chris -- for exactly the reasons you're talking about.

A lot of what we've done in 2014, we've only really seen the benefit in the back half of the year. So, extrapolating that into a full-year across higher crushing rate, we can expect to see those costs on a per silver equivalent ounce basis come down further next year. In fact, I think we're looking at something greater than a double-digit decline there next year.

Great, okay and then finally at Kensington, obviously the big question for me at the moment is those grades. Good grades I guess in the Q3. Are we are going to see a continuation of that next year?

Well, this is Frank, Chris. What we saw in the third quarter was according to the mine plan that we're executing this year. There will be periods next year, where the same thing will fall out. I don't have all those plans finalized at this point, but we have opportunities.

Where a lot of that's coming from is a narrow vein system that we developed and started the mine in. This Raven zone, which is going to be similar to what we would do with Jualin in the future. But there's some good high-grade material in there and it's a good offset to some of the ore grades from the main area of the mine where it's in the upper teens per ounce type grades.

In the month of August, in that quarter, we really benefited from that Raven just through the mining cycle that was taking place and you can see the kind of results that come out of that. So, we're trying to maintain that in Raven and grow that further into next year and then expand on it a little further out with what we might do it with Jualin.

And then finally at Kensington, I know we spoken in the past about potential for maintaining or even increasing, I guess, the mill throughputs. So, have you got any comments on that?

Yes, we have the capacity to mill into the 1,900 ton per day range. We do so quite often, but we'll moderate that throughput up and down based on grade. Of course, we wouldn't manage that. We wouldn't try to mill at rate, we get into these high-grade -- availability of the higher grade ores but you do want to maintain recovery, not over swamp your mill out. But we have ample capacity and a lot of flexibility in what we can do with that mill.

We're permitted to go up to what, 2,000 tons?

2,000 tons per day.

Right, okay, perfect guys. Thank you very much.

Jorge Beristain, Deutsche Bank.

Just to kind of get an update on Guadalupe project. I have a presentation in front of me that's putting the NPV of that project at $25 million, but that was based on a $20 ounce silver assumption and $1,300 gold. If we would have kind of mark those to market at $15 silver and a $1,100 gold, what would the NPV will be?

You have a few offsets there, Jorge. Obviously, lower prices would be a negative, but I don't know what -- if it's our presentation that you're looking at or what presentation you have?

It says Guadalupe Mine Plan Preliminary Highlights, Unlocking Palmarejo's Value, June 23.

I think I have the same thing in front. That is a plan, like I mentioned in my comments, it's got about only 30% of the total material from Guadalupe in it. It assumes that 1,500 ton a day rate starting next September and staying flat throughout the remaining years out to 2021.

In reality, that's not going to be the case. What we're trying to do and what I was trying to telegraph in my comments is we're going to get that 1,500 ton-a-day rate up higher than that. We just don't have it in the plans and in a position yet to share it with you.

But as we get into the first quarter and we can demonstrate that to you on the basis of a well engineered plan, you'll see higher tonnages and higher production levels and higher cash flow that would probably more than offset a mark to the current spot prices.

I would just add, Jorge, this is Frank. We have a solid base case, it was developed on higher prices. That's not going to slow us down in terms of how we want to take advantage of that resource.

The real key at Guadalupe is to develop additional ore zones underground and that's what we're working towards through our development efforts and that's what's currently being planned, and coming close to our new plans to look out and see what that does. But even at the lower prices, we're not going to be satisfied with what we estimate in our base case, we are going to improve on that.

If I could maybe just have a follow-up with Peter. I guess one of the difficulties in valuing precious metals companies in this current environment is you're looking for something to latch on to, whether its price to earnings or price to cash flow or enterprise value and book value.

And looking at your guys' book value, you're still carrying about a $1.6 billion equity value on book. Your stock is trading at about one-fifth that amount, but we look back at what you're using in terms of your assumptions for silver and gold prices.

And maybe I'm off here, but I read that your resources are calculated at $29 silver, your gold at $1,600 and I'm just wondering what point do you have to make the executive decision with your accountants to kind of mark-to-market a more realistic number and take these book value write-downs that are required to reflect the current asset values in this current market?

That was a pretty leading way to ask a question. In any case, let's separate reserve/resource pricing. We'll go through that exercise independently. And obviously reserve and resource prices will track something closer to where the market has taken us over the course of the year, but as you know, that's a very inexact science.

Last year, we booked an $800 million impairment charge on Kensington and Palmarejo. We go through our process through the year, but certainly with a finer point at year end and this year will be no exception in terms of reviewing the carrying value of our assets on the balance sheet and we'll draw conclusions at that point, but certainly directionally your comment is well taken and fair. It's an issue that we'll look at and draw a conclusion at the appropriate time.

But carrying value of assets in a period where silver prices are half what they were two years ago has a significant impact, and we look for triggering events. Price in isolation is not a triggering event, but it's something we have to take account of in that process.

Right and you guys did say earlier that of your senior notes, there are no covenants, which I'm interpreting as being more flow covenants. But are there any net tangible book-value covenants or if your tangible book was to come down significantly, could there be any collateral impacts on secured or unsecured debt access?

Jorge, no impact. It is a maintenance covenant package only. No tangible book value or any such tests that would have an impact on our bond covenants.

Okay, thank you.

Andrew Kaip, BMO.

I'm going to just follow a bit on what Jorge was talking about. You've shown good capacity to improve grade at Kensington. Palmarejo has a plan that is moving in that direction.

And I'm just wondering with the contemplation of looking at reserves at year end at lower metal prices, which project do you see being most sensitive? My sense is that it's going to be Rochester, but I'm wondering if you can provide any more detail?

Hey, it's Mitch. We have been looking at some sensitivities based on a year-ago reserve levels. I think you're right. Rochester is the most sensitive to lower price reserve and resource assumptions.

Obviously, we've added a lot there over the last couple of years but, I think it's fair to say, we'll give a lot of back here at the end of this year.

Just looking at your operating cost reduction plans, you've done quite a bit of work at reducing costs. I'm just wondering how much more of the cost reduction you're contemplating is really going to be reducing base costs, unit costs on a per-ton basis versus say improving grade that is going to reduce your overall cost on a per-ounce basis?

I'll take that one. This is Frank, Andrew. The fact of the matter is that for the last two years, we've been very focused on cost reductions and have achieved a lot. Roughly 8% direct mining cost reduction has been achieved in last year and that's sort of where we are on target to get through this year.

That's not going to go away. At the end of the day, as we look forward, it all comes back to your operating plans and what are the key features of that, in terms of how our costs will be shed. In some cases, some of them might be quite significant.

For instance, we plan to cease open pit mining at Palmarejo next year. The people that are currently mining, the equipment that's being used and maintained and all the diesel that is used to run that equipment. A lot of these things will drop off at milestone points, and you'll see shifts down.

But that focus on cost reductions in all the different areas that we are focused in will not stop. And can I say that 8% reductions are possible year-over-year for an indefinite period of time? I'd say no, but we're going to approach it like it is.

Okay and then just speaking on diesel prices. I mean I'm sure part of the relief that you're going to see at Rochester is in fuel prices, and I'm just wondering if you're starting to see that flow through on the operating level?

We are very pleased with where those prices have gone and we've been quite happy with cyanide costs this year, and expect to reap those benefits as we go into next year.

Okay, thank you very much.

Be a reduction of consumption and also price is helping a lot.

Great, thanks very much.

Brett Levy, Jefferies.

Would you consider monetizing any of the various external growth or strategic investments that you guys have at this point? It seems like a difficult time to try sell low here, but if you needed to raise some money, would you consider doing that?

Well, yes. I think you -- the short answer is, yes. And you've, I think, hit the nail on the head. It's not necessarily a seller's market right now.

And I think the assets that we do have, especially, the big four, we need to make progress on these initiatives or more progress in order for someone to really I think get comfortable to pay us the kind of value that we see at these assets.

So, as we progress on our plans hopefully that bid/ask spread would narrow. And maybe if right kind of opportunity came along, we would certainly take a look at it. But I think just raising capital through monetization of assets. You've got to have a good plan for what you're going to do with the proceeds, and not just sell to sit on cash.

So, the plan is to spend a little bit of money, de-risk some of the project, and then potentially flip it?

Well, I don't know if that's the plan to flip anything. Our plan is to improve them and run them and extract even more value, but if some wanted to come along and pay us what we thought was full value, we would certainly consider it.

David Deterding, Wells Fargo.

Just looking at Kensington for the quarter, it looks like sales were was quite a bit ahead of production and it looks like we might have some of that fall-off in Q4. Can you just kind of talk about what's going on there and what should we expect for production to be higher than sales in the fourth quarter?

Frank, go ahead.

This is Frank. There was a catch-up of sales in that particular quarter, which was helpful on the revenue side.

With concentrate shipments, there's a kind of a cyclic ebb and flow. We are working at all times trying to always minimize the gap between what we produce and what we sell. We're doing a very good job with that in most quarters, but there are things that can happen that would delay a shipment or delay its processing on the other end, and these things happens.

But yes, you'll continue to see a little bit of ebb and flow in how the revenues are coming and produced versus sold. We're just trying to keep that gap as tight as possible.

But there are always issues around revenue recognition and timing of shipment around the quarter end, and when we actually can book that revenue. We try and minimize it obviously, as Frank suggested, but yes, it's a continuing challenge for us always.

Great, and then I know you kind of guided to flattish type CapEx next year, but what would you consider your base maintenance CapEx, if we stripped out all kind of growth in the Company?

Approximately $50 million, David.

Just on the hedges, just to make sure I'm clear. You have hedged production for Q4 this year, and Q1 of next year. But there are no hedges going beyond Q1 of next year, is that correct?

Yes, that's right, David. And not surprisingly there are put spreads on silver and gold. 1.25 million ounces of silver in Q4 and Q1 and the put spread starts at $18 and goes down to $16. So, that's paying out a significant amount of money and it's 25,000 ounces of gold for each, Q4 and Q1. But you are correct, they extend to the end of Q1 of next year only.

And we would look at opportunistically extending those, but certainly in this price environment, those are not the kind of opportunistic conditions that we'd be looking at extending.

Certainly understand. And then, last question, it's just on -- like you said, you bought back some bonds during the quarter. I believe you guys still have a stock authorization out there. I mean, with your stock price where it is, how do you think about buying back stock versus bonds at this point?

Yes, it's a capital allocation issue and we had lots of spirited discussion internally on that. But in this liquidity-preserving environment that we're in right now, while our stock price looks extremely attractive, buying back bonds and pairing back that cash interest commitment at this point just seems like the prudent thing to do.

(Operator Instructions) David Olkovetsky, Jefferies.

You mentioned earlier in the call that you're looking to spend some CapEx dollars to try to reduce costs. Just wanted to kind of get a better sense of how much of that CapEx plan relates to lowering costs and how much can you actually lower cost by on either a silver ounce equivalent basis or however you want to think about it?

Yes, I'll take a crack at that. If you think about the three mines I talked about, over the next couple of years, Rochester, the capital to go in there would be primarily for expansion of leach pad capacity.

And a lot of the capital that has already been invested there to drive the kind of efficiencies that we're seeing there on a unit cost basis. But that would be for Rochester probably over the next couple of years a combined $70 million to support the kind of lower cost profile that we now are enjoying there.

At Kensington, the costs to develop this higher-grade material that we've talked about and get it into the mine plan over the next couple of years is probably about $50 million and that's designed then to drive cost reductions from what has been kind of a plus $1,000 an ounce cash cost profile to something that starts with an 8 on the cost.

And then down at Palmarejo, I mentioned what we're doing there is really the Guadalupe development. Over the next couple of years, 2015 and 2016. You could earmark about $40 million for that and that's designed to drive the cost down there along the lines that we've laid out. Even in that July mine plan that we disclosed that can get ultimately, I think in that plan, we show costs on per silver equivalent and ounce basis getting down into the single-digits there.

But when you kind of roll that all together then, I made the comment about our goal is that in 2017, getting those all-in sustaining costs down 15% to 20% from where they were say last year is what the objective is by deploying this capital in those ways. Does that help?

Yes, I think it does. So, if I think about all-in sustaining costs, I think you guys are talking about some -- so in 2013, I don't have the number in front of me, but I want to say it's something like $19 or $20 an ounce is that about right?

Yes, that's about right.

So, that's essentially shaving off three to four bucks an ounce. Okay, that's very helpful.

And then with respect to percentage of your book that's hedged, I mean it seems like it's about a third for a silver, a little bit more from gold for the next couple of quarters. Have you thought about potentially monetizing those hedges considering where silver and gold are right now, which is to potentially capture some upside or is that (multiple speakers)

We have looked at that and bigger percentages are correct.

Okay, perfect. I those are my questions. Thanks very much.

There are no further questions at this time. Mitch Krebs, I'll turn the call back to you.

Okay, well thank you everybody. Appreciate your questions and you taking the time to dial in today. And we look forward to speaking with you, I guess in early 2015, to discuss our fourth-quarter results and our full-year 2014 results. So thanks again for your time.

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