Coeur Mining Inc (CDE) 2016 Q2 法說會逐字稿

Good day and welcome to the Coeur Mining second-quarter 2016 financial results conference call and webcast. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference call over to Ms. Courtney Lynn, Vice President Investor Relations and Treasurer. Ms. Lynn, the floor is yours, ma'am.

Thank you and good morning. Welcome to Coeur Mining's second-quarter earnings conference call. Our results were released after yesterday's market close and a copy of the press release and slides for today's call are available on our website.

Before we get started, I would like to remind everyone that our press release and certain of our comments on the call include forward-looking statements from which actual results may differ. Please review the cautionary statements included in our press release and presentation as well as the risk factors described in our latest 10-K and 10-Q.

I will now turn it over to Mitch Krebs, President and Chief Executive Officer.

Thanks, Courtney, and good morning, everybody. Thanks for joining our call. We reported very strong financial and operating results yesterday; I'd say the most gratifying quarterly results in the five years that I've been CEO of this Company. Our performance reflects the progress we've made in revamping the Company, its operations, and its culture to position Coeur for long-term success.

The second quarter is a testament to the hard work and solid execution by our employees of the strategic plans we laid out three years ago. They also provide even further evidence of our ability to consistently deliver on our commitments.

While we still have more work to do in executing our strategy, I'm certainly pleased to see our production growing and our costs, both operating and nonoperating, continue to drop, declining debt levels, and our earnings now turning positive. And I'm particularly pleased to see our free cash flow shift to positive sooner than anticipated.

The rise in silver and gold prices since the beginning of the year has provided a strong tailwind for the entire industry. But our steadily improving cost performance and solid execution quarter in and quarter out are really starting to set us apart.

A major milestone was achieved during the second quarter when we received the Record of Decision from the BLM allowing us to begin the next leach pad expansion at Rochester, which we expect to be completed by this time next year and will further extend the mine life.

We are also extremely pleased to have now satisfied the obligations of the old gold royalty agreement held by Franklin Nevada on Palmarejo as of July 26. Beginning in August, we are shifting to the more favorable terms under the renegotiated gold stream agreement, which should have a significant positive impact on the Company's cash flow going forward.

Just a few highlights I'd like to point out before opening up the call for questions. On the production front, overall production levels were up strongly, 19% higher compared to the first quarter. Palmarejo's silver equivalent production rose 34% due to higher grades and more tons coming from underground mining out of Guadalupe and a small amount from Independencia. Slide 10 in the presentation materials illustrates these trends over the past few quarters as we've successfully transitioned Palmarejo to 100% underground mining.

Rochester's silver equivalent production increased 31% due to higher mining rates, mostly. And Wharf's production was up 34% over the first quarter, thanks primarily to fresh ounces that were loaded onto Pad 2 earlier in the year.

In terms of costs, our overall cost per ounce were down by double-digits yet again, and that's on the heels of strong cost reductions in our first quarter as well. Slides 6 and 7 do a good job of showing these consistent reductions in trends that now stretch back over the past three years.

The biggest drops in the second quarter were at Palmarejo, where adjusted costs applicable to sales were down 19% to $8.24 per silver equivalent ounces; at Rochester, where they were down 8% to $10.43 an ounce; and at Wharf, where they were down 20% to $534 per gold equivalent ounce. Our G&A, which has come down by about 45% over the last couple of years, was down 11% quarter over quarter and 13% year over year.

In terms of financial highlights, obviously we are proud to report positive quarterly earnings. Net income in the quarter was $14.5 million and adjusted earnings were $17.3 million. Adjusted EBITDA nearly doubled from $36.8 million in the first quarter to $72.4 million in the second quarter. And on a trailing 12-month basis, adjusted EBITDA stood at $171 million.

Free cash flow, defined as operating cash flow less CapEx, less payments to Franklin Nevada, was $12.2 million during the quarter and is expected to climb throughout the remainder of the year. We've been pointing to positive expected free cash flow in the second half of 2016, so it's great to accomplish that a quarter or two earlier than planned.

On the balance sheet, we ended the quarter with cash of $258 million. And then subsequent to the end of the quarter, we paid off the $100 million term loan, which reduced our total debt by nearly 20% and annual interest expense by about $9 million and brings considerably more flexibility to our balance sheet.

Taking this repayment into account, our total debt to adjusted EBITDA now stands at 2.5 times versus 5.9 times just a year ago. Slide 8 illustrates these trends of lower debt, rising EBITDA, and a rapid decline in our leverage statistics over the past several quarters.

Lastly, just a couple of comments on the impact of our recent acquisitions. As you know, we were more active than most over the past couple of years and those additions are now paying off handsomely. The Wharf mine, which we acquired for just under $100 million about 17 months ago, has already returned nearly 60% of the acquisition cost in free cash flow and is on track for a fantastic year. Slide 15 shows what our team has been able to do at Wharf in terms of mining rates, costs, and cash flow since closing that acquisition early last year.

And then at the Independencia underground deposit at Palmarejo, which we consolidated through the acquisition of Paramount Gold and Silver a little over a year ago, we are well on our way to achieving a mining rate of 1,000 tons per day by year end this year, which will then become a second major source of high-grade ore along with Guadalupe and help lead to what should be a huge 2017 there at Palmarejo.

As we look forward to the second half of the year, we are well on track to deliver our full-year production and cost guidance. Our year-to-date costs are running below our full-year guidance ranges. Assuming these trends continue in the third quarter, we'll need to take a look at revising downward our cost guidance, which would be great, but we'll leave it alone for now and see how the next three months goes.

We do plan to increase our exploration spending during the second half of the year by about $8 million. A little less than half of this amount will be expensed exploration to try and add new resources at Kensington and Palmarejo in high probability areas. It will also fund some earlier-stage exploration programs on properties in Nevada and Mexico that make up a part of our longer-term pipeline that we have assembled over the past couple of years.

The remainder of that $8 million of additional exploration spending will be capitalized and will focus on accelerating the conversion of existing high-quality resources to reserves at Palmarejo, Rochester, and Kensington.

We also plan to bump up our capital expenditure level during the second half of the year by about an additional $10 million. About half of that amount will be used to accelerate the work on the stage for leach pad expansion at Rochester now that all the permits are in hand.

We expect the total cost of that expansion to be somewhere between $40 million and $45 million, the majority of which will be spent next year in 2017. The other half of that $10 million additional CapEx expenditure in the second half will be used to create another portal into Guadalupe from the south along with funding the ongoing development work at Jualin at Kensington.

As pleased as we are about the second quarter and the year so far, we really do consider this to be just the beginning. We've invested about $60 million at Rochester over the past two years to achieve the higher mining rates and greater efficiencies we are only now starting to see. We are investing over $40 million at Palmarejo to transition to higher-grade, higher-margin underground mining, as you could see in the most recent quarter.

Slides 9 and 10 in our presentation materials do a good job of illustrating the significance of this transition. But the full impact of these investments at Palmarejo really should start to be seen next year once Independencia starts to ramp up above 1,000 tons per day. In the meantime, our drilling results at both Guadalupe and Independencia make us feel very optimistic about the long-term potential of Palmarajo.

We are also investing about $40 million at Kensington to drill and develop significantly higher-grade gold ounces there. But that's not expected to start impacting Kensington's production costs and cash flow until late next year.

Even without that future expected benefit of the higher-grade ore, our team has been able to bring down Kensington's cost by nearly half. In 2012, cost per ounce there were over $1,300 an ounce versus $740 an ounce in the most recent quarter.

In terms of just getting started, 2016 is the first full year of having worse low-cost production and free cash flow in the portfolio, which is making a big difference. Even our strategy we began implementing late last year at San Bartolome to purchase higher-grade ore is only now starting to have the intended benefit.

If you look at slide 16, you can see exactly when we implemented this approach when costs dropped down by about $2 an ounce. As a result, San Bartolome generated $15 million of free cash flow in the first half of this year.

When stakeholders ask what's next for Coeur after seeing how far we've come over the past couple of years, there is no shortage of initiatives to point to that are high return, high impact, and well advanced. I know I speak for everyone here when I say we are pleased with our second-quarter results and that we remain focused on delivering the many components of our strategy that still lie ahead of us.

That's the extent of our prepared comments. Let's go ahead then and open it up for any questions.

(Operator Instructions) Joseph Reagor, ROTH Capital Partners.

Good morning, guys, and congrats on another great quarter. So couple questions on the guidance side. I guess first on the CapEx side, you know, if I look at what you guys have spent year to date versus guidance, it seems like you are trending towards the lower end if not below the lower end of guidance. Is there particular mines that have larger CapEx spends in the back half of the year that we should be modeling in?

I'd say you are right. The run rate through the first half of the year trends toward, if you extrapolate that out to the full year, to the lower end of the guidance. So much of our CapEx is underground development. And then second to that is the capitalized exploration. A lot of that capitalized exploration spend really only got going kind of in the second quarter, so that will accelerate throughout the rest of the year.

And in terms of the underground development, that's likely to stay pretty static. We'll see then this pickup obviously then at Rochester as we get going on Stage 4 expansion. Actually, we've already started the work out there.

Frank, is there anything I'm leaving out in terms of capital that would be more back-end weighted?

No. It's as you said: the drivers are underground mine development and our capitalized drilling. Those carry the lion's share of the spend.

Does that answer your question, Joe?

Yes, yes, that's helpful. And then on the costs and the production side, you kind of hinted around the Q3 results will determine whether or not the cost guidance needs to come down. But also on gold production, it looks like based on the way the mines play out for the rest of the area, it looks like you guys are going to trend towards the high end of that number as well.

You know, what's the basis for remaining cautious here? Is it concerns that maybe the US dollar rally will reverse a little bit and that will impact some of the international mines? Or what could we peg the caution to?

It's not as cerebral is that. It's more where we consider ourselves to be at half-time here at the end of June. We are really pleased with the way the first half has gone. We expect the second half to go as well, but we also don't want to be in the position of moving guidance around from quarter to quarter.

We'd rather see a little bit more time go by here into the second half of the year. Hopefully these trends will continue and then we'll be in a position in our third-quarter results to drop things down on the cost side. And maybe even to your point, Joe, take a look at the gold guidance range at that point once we're further down the track. And that's really all there is to it.

Okay. And then one final one, if I could. After the $100 million of debt repayment early this quarter, do you guys have like a long-term target for debt to EBITDA that you guys want to get to and then maintain? And once you were to get there, do you think that you guys would start to think about paying a dividend? Or basically what would you do with cash once you get there?

Joe, it's Peter. And certainly our target would be total leverage of around 2 times and we are getting close to that target. And really managing a capital structure around that. Certainly focused on hopefully improved credit rating and therefore improved cost of that debt as well.

And in terms of paying a dividend, that's certainly something we would absolutely aspire to as we kind of mature the Company and the capital structure. Having a rational return of capital to shareholders is something that we have certainly talked about and would like to implement.

But most importantly on that, we want to make sure that it's a sustainable dividend and a meaningful dividend as opposed to just kind of a token tip-of-the-hand kind of dividend. So certainly in terms of our long-term strategy return of capital, it is something that we think about, for sure.

Okay great. Thanks for taking the questions.

Chris Thompson, Raymond James.

Good morning, guys. $2 billion company and one of the few outperforming gold stocks or silver stocks in my universe today. Congratulations.

Couple of questions here, really. I know you've mentioned a little bit about costs and maybe looking to bring down the cost guidance in the Q3. What operations do you think can potentially beat as far as cost guidance, Mitch?

That's maybe a trick question. Frank is giving me a glare. I will start and then Frank can chime in. I'd say the obvious one -- for good reason, I think -- is Palmarejo. We are running well below there, but you kind of have to go back and put yourself in our shoes in December and November when we were going through the budget cycle and thinking about the year ahead in 2016 at Palmarejo.

There's a lot going on and a lot of moving parts. And some of the things, quite frankly, we didn't know exactly how they would play out throughout the year. We are running that mill intermittently. What would the impact be of that on costs and recoveries, things like that that through the first six months, it turns out that the guys are managing that really well and the results reflect that.

And so I think if we can continue that path at Palmarejo, that is the one that I think is trending far enough below to where we probably would start with that one in terms of making any changes.

Frank, A, would you agree with that? And B, are there any others that come to mind?

Yes, Palmarejo fits that picture. I think also at Kensington, you know, we are through the midpoint of the year. We've done quite well.

Looking to the second half of the year, though, we know and we are forecasting for certain maintenance expenditures. Those will come at Palmarejo as well, which may offset some of what we may have ultimately achieved this year at Palmarejo. This is related to maintenance that will be incurred on our mobile fleets.

Wharf, you know, we are on the low end of the guidance range as well. But you know the nature of the way we operate that pad and balance things out between mining and loading pads and unloading pads, we've got 3 million tons of unloading to do in the second half of the year. That's not done for free. I think we estimate that's between $0.25 and $0.30 a ton.

So that's coming as well. So I expect to see these mines' costs creep up slightly, but stay within the guidance range at the end of the year.

Thanks. Just you mentioned some dollars on CapEx to accelerate sort of developments at Guadalupe with another portal. What is the reason for that? Is that improved operational flexibility? Or is that to facilitate a potential increase in mining rate there?

It's both, Chris. That Guadalupe mine strikes north to south and we've been working it from the north end. We've got mining zones in there: blocks A, B, C, D, and E. And we've been focused so far in A, B, and C. We'll be transitioning over to D in the next year.

But we want to strike from the south and start heading so that we can connect the whole mine. That will just simply open up some additional faces that will provide for higher mining rates a little bit earlier than what our previous plans have allowed for or have been focused on.

Chris, two other things I would add to that. One is ventilation will be dramatically improved and that will also help improve productivity.

And then secondly, I know there are some areas to that south end that with this portal in there it will open up a whole other area for underground drilling that we are real keen to get into and hopefully keep extending Guadalupe then to the south and east. And this portal will facilitate that work.

Great, thanks. And just quickly, if you can -- what are the mining rate and the mining costs, I guess. And I'm going to say the word -- Independencia. How do they compare with those for Guadalupe?

You did it, Chris! You said it! Go ahead, Frank.

We currently project that they will be quite similar to what you are seeing in our reported results at Guadalupe. Something in the mid-$40 per ton range.

Great, thanks. Just quickly moving on -- San Bart here. Do you -- 30% of the ore is purchased. Do you see that continuing at that sort of rate?

We do. You know, it's something that we need to keep very focused on and it's a little bit of a different business that we are in there doing that. And so there are things like a competitive element there with other people who do seek out to buy the same sources of authority that we do.

So there are pricing strategies and we need -- and as the price of silver changes, those competitive dynamics change. But we feel like we've got enough sources tied up to keep that 30% ratio going forward for as long as we can see.

Okay, great. And then finally on Wharf, obviously production hinged to I guess the Golden Reward there. Is production still weighted for the second half? Because if it is, you guys are going to blow through your guidance.

Yes, it is. We'll see it. We're mining in Golden Reward in the second quarter and we'll continue through the third quarter until we have to stop for the upcoming ski season. But we've been getting some good grades out of our American Eagle pit as well.

Great, all right. And then I think the previous caller touched on it. The focus is a continual deleverage of the balance sheet. A reduction in debt?

Yes, Chris. Obviously as Mitch said in his prepared comments, the $100 million was a big step. And the key there with taking out the term loan B is the flexibility we have in continuing that deleveraging. So yes, we basically have that one large tranche of debt left: $380 million of the 7 7/8 bonds. And our focus would be on continuing to methodically deleverage.

Perfect. Guys, congratulations. Thanks.

Craig Johnston, Scotiabank.

Thanks for taking my call. Congrats on a good quarter. Pretty neat to be talking about potential dividends on a conference call when we look back to just, say, three quarters ago what the focus was. So congrats.

Just a couple kind of cleanup questions. I think Chris covered a lot of the stuff I wanted to cover. But at Palmarejo, underground mining costs blew my estimates out of the water at $33 a ton. Any color on what your expectations are going forward? And maybe what drove that to be so good this quarter?

Craig, this is Frank. There is several factors going on in the mine itself. We are actually mining in some areas where we've been able to increase the size of the stopes. And that makes each one of those stopes yield more tonnage for the same activity level that goes into it and cost.

So we are getting some really good efficiency and additional tons at the same cost out of certain areas of Guadalupe. This is taking place in areas where ground conditions are better than others and you can run your stope just a little bit bigger. That's been fantastic.

We've also really kind of subtly in the background that we have to haul that ore back to the process facilities. And we've really optimized the cost per ton of hauling that material back to the plant.

We've just -- in addition to all that, we are just becoming much more efficient. Our knowledge base of the mine itself has increased and we're getting a lot better at getting that ore out of there at a lower cost.

That's great. So going forward, thinking in this range is a way we can think about it? Or what's the best way for us to look at it?

Yes. I expect what you're seeing now to continue on throughout the remainder of this year at any rate. The mine plans change every year and we'll see what it's looking like later this year.

That sounds great. Thanks, Frank. Similar question with Kensington as well. It looked like mining costs came down arguably 20% and the best we've seen in the past five quarters. Just any color on what drove that?

Well, it was a quarter where our mine rate outstripped our processing rate. We ended up with a 20,000 tons of stockpile sitting in front of the mill, which is good and bad, I guess. You know, we've got to work hard now through the remainder of the year to kind of back that mining rate off, which ultimately you may see our cost per ton of mining there creep back up a little bit.

But we need to increase our milling rates. And the reason that we were holding our milling rates down a little bit is we've been beneficiaries of good grade coming out of the mine against our internal plans. And we just didn't have to mill quite as hard to achieve the result, which is substantially ahead of midyear.

Pretty good problems to have. Okay, thanks, Frank. Maybe just a question for Peter. Not a fun question on taxes, but just trying to understand the movement in taxes this quarter. I guess just the reason being is we see a big kind of deferred income tax adjustment in the operating cash flow. Just trying to understand the current versus deferred tax expense and kind of any movements within that.

As always, Craig, taxes for Coeur are a complex area with a lot of moving parts. In terms of the current provision, probably the biggest driver on that was related to our noncore asset sales and the Mexican tax associated particularly with the El Gallo sale drove that number to -- I think the total number was around $4 million.

On the deferred tax provision, a couple of things were driving that. We had an additional FIN 48 accrual as well as some FX movements in Mexico that were driving higher numbers on that. But that's kind of the high-level summary, and as you are trying to model them, etc., we are happy to get on the phone and help you sort of with the more granular details of it.

Okay. No, that's perfect. Thanks, Peter. That's it for me. Congrats again on a good quarter, guys.

Jessica Fung, BMO.

Excellent quarter. Don't say that very often, so excellent quarter. So couple of questions from me. In terms of your increased exploration expense, so not necessarily the capitalized exploration, but on the expense side, you guys have listed guidance for that as well. Where is that going?

Hans, do you want to cover that?

Yes. Hi, Jessica; this is Hans. Apart from capitalized, we are putting the lion's share of the expense in Kensington. And that's because we see a lot of opportunity there. We are drilling from the surface and mainly testing Veins 1, 2, and 3 believe it or not above Vein 4. There's an easy way to add those ounces back into our resource and possibly reserve base just by twinning historic drilling there.

Also moving into the winter program, we will probably do some expansion drilling on Vein 4 because we can do that literally from the camp and expand the vein to the south. You may recall we had some offset drilling we reported last year that was almost 1,000 feet from the resource, where we hit the same vein. And so we are going to try to infill that and get more certainty on the potential upside for Vein 4. So that's where most of the expense drilling is going.

We're also just starting to ramp up our earliest-stage greenfields programs. We'll drill one of our projects in the US this year. We'll get to one of our projects in Mexico in late like November once the monsoons stop. And we're [curating] three more projects for drilling in the US early next year. And then also we'll have those -- a lot of those ready to go in the next budget cycle.

Okay, perfect. That's great news getting to the greenfield sites. Second question I have is on hedging. Can you remind us what your thoughts are in terms of hedging the metal prices?

Sure. It's Peter, Jessica. As you probably know or observe, we have no hedges in place at this point and it's something that we are continuing to monitor. Historically, we had about a third of our production hedged in the form of put spreads on the downside. Really return to current metal prices is a relatively new thing, our costs coming down, so really creating some margin to even start to talk about hedging is a relatively new thing.

As we deleverage, the urgency to do it is certainly less than it was when we were actively doing it between end of 2013 up until early last year. So it's something that we are continuing to monitor, but have not pulled the trigger on yet.

Okay, perfect. And finally, in line with some of the previous gentlemen's commentary, in terms of priority for your free cash flow that I think most people are expecting from you guys now, obviously I think probably repaying some of the debt -- debt is up there.

But I guess can you give us a sense of strategically where your priorities are? Do you want to do more exploration? Or do you feel like improving the balance sheet is up there? And then again, where do dividends come and if you can prioritize where you want to your cash flow to go?

Yes, it's kind of a ranking driven by really a basic rate of return criteria. And for us, we take kind of an inside-out approach. Meaning, we start by looking around our existing mines, what can we do at our mines, around our existing mines in terms of incremental capital, incremental expansions or extensions to really leverage all of that big sunk capital that's gone into these five mines that we operate.

You know, it's hard to beat the return on brownfield exploration, especially at places like Palmarejo, where we have so many targets, where we've opened up some new areas to drill now with that tunnel that connects Guadalupe and Independencia. You know, there's a lot that we can do and will do around Palmarejo to keep extending and expanding that new sort of high-grade underground reserve and resource.

As you and Hans just discussed, we'll spend a little bit more on the earlier stage end of the pipeline, thinking about what's next for us 5 or 10 years from now. And then sitting in the middle are these development projects. It's easy to forget that we have La Preciosa and even Joaquin down in Santa Cruz, Argentina, both of which are quality projects and are both being looked at by our teams to see if there are more attractive, more economic ways of approaching those as sources of high-return growth.

And you start getting working all the way down that list in terms of relative rates of return. Then balance sheet pops up in there. And I think after you get past the delevering conversation, which Peter talked about and is something we can do opportunistically now that that term loan and those restrictions are gone. Then dividends become kind of the part where excess cash flow after all of those other things are taking care of can be allocated.

I don't know, Peter. Did I miss anything?

I think you covered it

Okay. Perfect. And last question, a little bit of nitty-gritty on Rochester. So obviously the tons that you guys are placing were quite strong in quarter two. Is this mostly to do with the second crusher or are there other improvements that you guys have been making there?

Jessica, it's to do with that expanded crusher. It's performing well and adding to the volume of crush material that we are putting out on the plant. We have a primary crusher. It's just doing its job as it always has.

We are getting an additional roughly 15,000 dry tons a day out on the pads through the expanded crusher, a little portable unit. We've also campaigned a fair bit of stockpile material as run of mine material out to the pad in the second quarter as well.

Okay, perfect. That's it for me. Thank you very much, guys.

Mark Mihaljevic, RBC Capital Markets.

Thanks and good morning, guys. Again, echoing everyone else's comments, but really nice quarter and nice to see you guys generating free cash flow earlier than expected. And again, I guess I'm towards the back end of it, so a lot of my questions have been answered.

But a couple to pick away at. So first off, you mentioned East Rochester and looking at it as part of an updated analysis of the broader Rochester operation. So can you just give some color on what you expect from that and how much of a contribution you could get out of there?

Frank, do you want to start that? And then Hans, feel free to chime in in terms of the exploration aspect with East Rochester.

Yes. We are attracted to the East Rochester resource target because it's showing all indications of some pretty decent grade out there for silver. Fundamentally that's why we are chasing that.

There are other areas of the pit that show promise as well, but it's certainly high on the priority list to complete our drilling and get our geologic resources pulled together. And it will fit into our reserve base as we move forward, we hope.

Hans, do you want to cover the exploration angle of East Rochester?

Yes, that was a huge priority first half for our drilling program. So we've completed the drilling. We should put together a compilation of all the drill results and that will go into our new resources and reserves for Rochester at year end.

Not sure about the timing of news, but we've had some good results that are consistent with the news release we put out earlier this year. And so the thing is holding together really well and it's just a matter of the economics and whether it justifies laying back the east pit or not. But it's a great expansion for Rochester in terms of great potential and grade upgrade.

And Mark, it's Mitch here. Just thinking about timing there, we just obviously got this POA -- what we've been calling POA 10 at Rochester over the goal line. And we'll be focusing on extending Stage 4 out there to provide us with more leach pad capacity.

But we are already now starting on what we call POA 11, and POA 11 will take 3 to 5 years probably to complete and get that permitted. And this East Rochester concept is something that we hope to kind of fold into this next permitting cycle.

Okay, perfect. Thanks for the detail on that. And I guess touching on La Preciosa, you guys had mentioned potentially looking at a project update sometime later this year. Is that still on track? And you know, have the results been as positive as you are hoping you could get something out of?

The team down there has been doing a really good job of kind of reevaluating that project. It's funny. They started that maybe a little over a year ago and without a lot of fanfare or attention or us bothering them. And now the level of calls and inquiries and hey, how is it going, how is it looking, have definitely picked up. But they are scheduled to be in here next month to report on what their work is looking like. So we'll see what that looks like.

What we hope we might be able to see is kind of a lower -- smaller tonnage, higher-grade, lower capital scenario there at La Preciosa. But we'll just have to see what we learn, and if that does look interesting, then there would probably be a need to do some drilling in 2017 to kind of confirm and validate a few things and then we'd go from there. But we'll start with the update next month and then we'll report back when we get on our third-quarter call with you all.

Okay, perfect. Hopefully, silver is at $25 or $30 by then and it will be a no-brainer.

There you go. That would make it easy.

Okay. That's it for me. Again, great quarter. Thanks, guys.

Chris Thompson, Raymond James.

Sorry, guys. I just missed a quick question and it was touched on earlier. I apologize if I missed the comments there. But the tons at Rochester obviously are higher than anticipated in the Q2. What is the plan? Is the plan to maintain that sort of -- the loading rate there towards the end of this year, extending into next year?

Chris, no. We'll back off to more historic mining rates that we've seen in the past, roughly around 50,000 tons a day being mined and placed out on the pads. We did that in the second quarter because, you know, we have a really long leach curve at Rochester for silver. So we wanted to get it out there -- a large slug of it out there on the pad early -- as early in the year as possible to take advantage of that in the second half. But we'll back off -- backing those mining rates off.

And then finally, Joaquin, the little project you guys have in Argentina, what's the thought there at the moment?

This is Frank. We are also evaluating that at the moment. Taking a look at it. We are refreshing our geologic model, taking a look at all the drilling results and so on, and trying to see what by the end of this year what sort of opportunity may exist there.

And Chris, that has I think about a 60 million ounce -- close to 60-million-ounce resource. I think the average grade on an ounce-per-ton basis is between 4 and 5 ounces per ton near surface. A lot of potential to expand that with some more work.

Obviously, we've worked there or about 60 kilometers south of there for about a decade when we ran that little Martha mine, which we've since mined out and have now sold. But it is still sitting there, and like Frank said, we are kind of blowing the dust off of it and taking a fresh look to make sure we have a solid understanding of how that could fit into our plans going forward.

Great, guys. Thank you.

At this time, we are showing no further questions. We'll go ahead and conclude the question-and-answer session. I would now like to turn the conference back over to Mr. Mitchell Krebs for any closing remarks. Sir?

Yes, okay. Thanks, everybody, for your time this morning. Our team delivered a great quarter and I want to thank everyone for their commitment and hard work. We are excited about where the Company is going and look forward to speaking with you again this fall to discuss our third-quarter results. So have a great day and thanks again.

And we thank you, sir, and to the rest of the management team for your time also today. The conference call has now concluded. At this time, you may disconnect your lines. Thank you again, everyone. Take care and have a great day.