巴里克黃金 (GOLD) 2016 Q2 法說會逐字稿

Good morning, welcome to Barrik's Second quarter 2016 conference call. We begin with formal remarks from management and welcome any questions you have after. [Operator Instructions]

Before we begin, I would like to highlight that during the presentation, we will be making forward-looking statements. This disclaimer slide includes a summary of the significant risks and factors that could affect Barrick's future performance and the ability to deliver on these forward looking statements. A review of our most recent AIF will provide you with a more complete discussion of these risks and factors. This conference call is being recorded and a replay will be available tonight on our website Barrick.com.

For that, I would like to turn to our President, Kelvin Dushisky.

Good morning. Let me apologize for the technical difficulties. I would like to thank everyone for joining us today. I know it's a busy day for earnings call. I am here with our Chief Financial Officer, Catherine Raw; Chief Operating Officer, Richard Williams; and Bill MacNevin, who is recently appointed General Manager at Goldstrike. I want to start by reiterating our strategic goals. These goals drive everything that we do and are reflected in our progress in the quarter. First goal is building partnerships of depth and trust with external and internal stakeholders. This is a cornerstone of our culture and one of the most distinctive features, of Barricks today. You will have see that in June the Zambian government placed 9% royalty on cooper production with a sliding scale royalty which is 5% of current copper prices. This change stems in part from our ongoing dialogue with our partners in Lawana the Zambian government.

We work together with our industry peers and the government to identify a solution that would allow the countries copper industry to flourish while still ensuring that the Zambian people benefit when the copper prices rise. Our second goal is to produce Industry leading margins in support of our ultimate objective, growing free cash flow per share. Our success in this regard is particularly evident in the quarter. Our fifth, of successful free cash flow generation. Our third and final goal is superior portfolio management through strong capital allocation we aim to ensure that our investments generate the return we expect for our shareholders and we will not compromise on this. These strategic goals underpin our 2016 priorities. Growing free cash flow per share are targeted to generate free cash flow even at a gold price of $1,000 per ounce.

Continuing to improve our balance sheet. We plan to do so by reducing total debt by $2 billion in 2016 and over the medium term to below $5 billion. Continuously, driving operational excellence is another priority. This is underpinned by our aspiration to reduce all sustaining costs below $700 an ounce by 2019. And finally maintaining capital discipline at all levels of the business. Our growth group and our investment committee have complimentary mandates in this regard.

Turning to the highlights in the second quarter. In tracking our progress against the priorities I just outlined, our operations generated just over $0.5 billion in operating cash flow and $274 million in pre cash flow. Strong cash flow generation has helped us to advance our debt reduction goal. Halfway through the year, I'm pleased to report that we're tracking well to our $2 billion debt reduction target with $968 million repaid year-to-date. Our production in this quarter increased to 1.34 million ounces and all-in sustaining cost of $782 per ounce. You will recall that we highlighted last quarter that all-in sustaining costs would increase in the second quarter in line with mine plans and capital sequencing. Based on a greater level of confidence for the remaining half of the year, we are narrowing our cash cost guidance range and reducing our all-in sustaining cost guidance by another $20 per ounce for the year. Furthermore, as we refine our capital budgeting process, and apply the Best-in-Class principal in sustaining capital expenditures, we have identified approximately $125 million in potential savings and deferral for 2016. We have adjusted our capital guidance accordingly.

In short it was a very solid quarter. We're tracking well to achieve improved guidance and long-term goals. as I mentioned earlier our investment committee and growth groups mandates are committee and complimentary. Together they help facilitate our goal to deliver low risk profitable growth. To maximize near term returns we are investing in infrastructure and technology that through our Best-in-Class program have the potential to improve free cash flow from operations. An example of our success in this regard is the investment in the underground infrastructure at Turquoise Ridge. That delivered over 50% more ounces at 15% lower cost between the first and second quarters. Our increase focus on Minex with a view to ore body extensions at existing operations is also delivering near and medium term returns.

One example of this is the -- in the near term is evidenced at Hemlo where expansions into the contiguous (inaudible) property is expected to provide more consistent production across the life of the mine. Medium term growth, for minex is expected with the discovery such as those discovered at Arturo at Goldstrike, and Monte Oculto at Pueblo Viejo. Also over the medium term investment contemplated in our four organic projects are expected to deliver new resources, increase mine site production as well as mine life extension Goldrush has the potential to deliver the first production from the new mine by 2021 and a long-term all and an all-in sustaining cost of under $700 an ounce. The phazed construction of a third shaft at Turquoise Ridge is expected to facilitate a potential increase in production at this mine to about 500,000 ounces per year, also at low-cost. Development of a sulfide processing plant at Lagunas Norte and the expansion the deep south at Cortez has the potential to extend mining at both those operations and we intend to supplement our longer term growth opportunities by extending our track record of successful Greenfield discoveries.

Our Arturo discovery in the Andes where we recently announced the initial resource has the potential to be developed into a large scale long life mine on the El Indio belt, an area that is very familiar to us. While Pascua Lama, Cerro Casale, Donlin Gold with the appropriate optimization could be developed to provide new sources of stable long term production in the Americas. We'll continue to invest in partnerships and properties that we believe have high prospectivity as we did in the project in Indiana. We'll continue to invest in partnerships and properties that we believe have high prospectivity as we did in the project in Indiana. We'll continue to invest in partnerships and properties that we believe have high prospectivity as we did in the project in Indiana. Balance sheet, significant improved cash flow equity valuation growth opportunities across all time frames could be supplemented with discerning accusations capable of delivering long-term shareholder value.

I would like to hand it over to Catherine to provide more details on the quarter

Thank you, Kelvin.

Before I go into the quarter and the half year, as well, I want to summarize our approach to growing free cash share sustainable. What we're trying to do is ensure that we focus on all of the drivers of free cash flow that we can control and not just one aspect. As we all know in the past, the focus was on production and not cost. CapEx or working capital. In recent history as the gold price has fallen the shift has been to capital expenditure. Cutting project CapEx relooking at sustaining CapEx and also looking at cutting costs more broadly. What we're now trying to do at Barrick is systematically tackle all the drivers of free cash flow together. Understanding, for example, that there are tradeoffs between the different drivers. For example, a good one would be the impact on immediate cash flows versus long-term cash flows in investing in CapEx to growth productions.

Kelvin has already outlined strategically how we are approaching growth and production whether it's through exploration, through development,, or through potential acquisitions. Richard will go on to cover how our focus on being Best-in-Class can increase productivity and operating efficiency with mine site with the aim of increasing production of unit costs. This focus on Best-in-Class has also had the effect of putting greater scrutiny on our capital budgeting, which in part explains the further reductions that we're seeing in sustaining CapEx this year. The other areas of focus, for the drivers of cash flow, the ways in which we manage working capital. We're looking at supply chain more closely. We are looking at seeking to reduce debt thereby reducing our finance costs. To put this into context with $4.1 billion that we've reduced over the last 18 months in total debt, we've reduced our annualized payments around $185 million. We're also looking at our holding costs on projects, to include, Pasqua Lama and we're looking and managing our closure sites more efficiently. And finally we are looking at G&A, keeping a watchful eye on G&A and ensuring that the spend there is focused and appropriate. I wanted to leave you with is that it's not just on cost, it's on production. It's not just on production, not just on any one thing. We're increasingly trying to look at this in a balanced way, systematically tackling all the drivers of free cash flow and ensuring that we understand the tradeoff between any one of those drivers.

That's the theoretical background. Now let's look more into the numbers. Given our focus that management is on cash flow, I'll just focus on these numbers today in the presentation. In Q2, operating cash flow, $527 million, and for first half as a whole it was $978 million. Our free cash flow, in other words, operating cash flow less CapEx in Q2, $274 million.

Our fifth consecutive quarter, as Kelvin already mentioned, free cash flow generation, and it highlights the changing way in which we are operating at Barrick. Looking at variance the year-on-year for Q2 and our cash flows you can see that the greatest positive impact would come from a reduction in our sustaining capital expenditure this year, some of which is timing, and we expect to see that unwind in the second half of the year. Why we now expect the third quarter to be our highest all-in sustaining cost quarter. But if I look at the year as a whole, and look at the way our guidance has changed from the beginning of the year to what we're releasing in these results about a third of the change has come from actually removing capital from our budgets. Some of that is through improved contractor rates, improved in process assumptions and improved overall timing and assumptions for the project, as well as changing scope.The remainder then comes from plan adjustments, Best-in-Class associated maintenance adjustments and deferrals into next year.

Our operating is costs has benefited from a combination of factors. We have seen the change in our sales next year-on-year with higher production coming from our lowest cost mines being beneficial to costs. Those mines have also had the benefit of higher grades year-on-year which in turn has helped volumes. We see lower input costs and better productivity driven in large part, by Best-in-Class program. Other positive impacts come from lower finance costs as the result of reduced debt, I've already talked about that. This has been offset by hiring factors as well as an increase in working capital related to an increase in receivable and some unsold gold at the end of the quarter. And finally, of course, we can't forget that gold prices have helped year-on-year.

Now, our free cash flow breaks even. What I mean by that, is the gold price that we need to break even or to make zero after the quarter was approximately $1,020 an ounce. So while we're not quite at our $1,000 target, we're still working towards that for the end of the year. Moving on to the balance sheet, our total debt at the end of the quarter was $9 billion, consolidated cash balance was $2.4 billion, leaving us with a net debt of $6.6 billion. Year-to-date, we have reduced out total debt by just under $1 billion, meaning we're approximately halfway through our $2 billion debt target for the year. Assuming that prices remain at or around current levels we're confident that we can meet our debt reduction target either with cash on hand or operational cash flow.

Finally, looking at debt maturity profile, and how that's evolved. We've less than $150 million dollars now due before the start of 2018. $5 billion of our $9 billion debt matures after 2032. We are still in a very strong position with regards to liquidity. Don't forget we have the $4 billion revolving credit facility. While we remain focused on reducing our debt further, we'll do so with discipline with the context of our business needs in mind, and most importantly on terms that are favorable to our shareholders.

With that, I will now hand it over to Richard. Thank you.

Thanks, Catherine. As you can see from your slide, our drive operation is delivering the results that Catherine has described. With the exception of Veladero, we've experienced challenging weather conditions all of our operations performed according to plan during the quarter. This solid progress confirms our confidence in our ability to deliver these operational improvements over the long-term, enabling us of course, to adjust guidance this year but the aim is looking at the low $700 all-in sustaining cost, as you know, in the near future. Moving to introduce Cortez, and Matt Gili is on the line. He's been leading Cortez to a very strong quarter, driven in part by a change in the oil type process. Away from low grade leaks material into high grade oil from the underground and open pit operations.

Therefore, production guidance has been increased along with the further reduction in cost guidance for the year. In this we're pleased say is the second consecutive quarter of guidance improvements from Cortez which you will recall was the first site to implement our Best-in-Class program. Matt and his team down there are leading the way for the company. Worthy of mention from me here, and Matt can follow up, if necessary, was the success that Cortez had in reducing the conveyor down time for plan maintenance, from an average of 76 days to just 12 days on the last maintenance cycle. As with a lot of these improvements they're achieved by breaking down silos between teams, by drawing the maintenance work force fully into the planning and thereby capitalizing on their experience and expertise. This approach is not limited to Cortez nor is it limited to conveyor repair. And is being deployed across the Cortez operations as well as the whole organization. Now on to ----- had a solid performance this quarter.

The tonnes mine and process and aliened with Q1 and the mine plan. Lower grade, less carbonaceous oil was processed in the quarter. Which allowed us to deliver, higher gold recoveries while silver recoveries improved to 60% with circuit improvements. Which delivered, allowed us to deliver, higher gold recoveries while silver recoveries improved to 60% with circuit improvements. This mine is on track to meet full year guidance and potentially outperform, if some of our Best-in-Class initiatives currently under way are successful within year. Improving the performance and through-put of the autoclave's has the potential to unlock substantial value for the mine. Each autoclave is required, recently, on average, 22 maintenance shut down every six months.

The team bottom up, pushing past the technical limits of this particular design has devised a plan to increase autoclave availability by extending the period between planned maintenance shutdowns. They did this by delivering a number of critical modifications to the autoclave's internal structures and having tested these, the initial results are positive, indicating two months of longer run time between maintenance being achievable, sustainable, and even the minimum that we can go to. If successful on all four autoclave's, it has the potential to increase through-put by 240,000 tonnes per year ultimately increasing production. A good example of Best-in-class. On to Lagunas Norte production is currently in line with guidance due to process improvements in the column plant and leech backs.

Jim Whittaker has been leading the Best-in-Class process down there and it's focused on material movement through the primary and secondary to de-bottle neck the plant throughput. The operations unit costs in the second half are expected to increase by approximately 20%, 25%. As a result of a lower proportion of stripping being capitalized combined with lower silver by-product credits being expected. The impact of this is reduced by a higher level of production expected throughout the half of the year. But the combined effect of all of this means that the overall cash cost of the year are expected to be higher than initially budgeted. The number of reasons for this, but it's primarily a result of high labor costs.

As is following negotiations, employee wealth participation increases as part of ongoing discussion. This itself has been partially offset by reduced operating costs over the year. Development initiatives over the quarter has focused on the phase six Leach plan expansion, which was successfully completed under budget. A large scale project such as this, led by Jim Whittaker who should take the credit for this, it is particularly pleasing that with 2.3 million man hours expanded on the project not a single LTI was reported. Moving down to Veladero. Veladero has been buffeted by severe weather. 29 days of such weather impacted road access, mining rates and processing levels during the quarter. Even though we budgeted for eight days of severe weather. So you can see what the issue was. This has been the most challenging weather event since 2007. As the events are preventing 8,000 ounces from being sold in this period. Given the significant effect of the weather, we don't expect to make the answers up by the end of year and we've adjusted guidance down as a result.

Although, Best-in-Class and other efforts will continue to work on that. To report further lever the effect of what happened at Veladero is offset by production increases in Nevada, and we are producing at lower costs, as you know. With improvements to mine planning at Veladero, the favorable macro environment for costs and the positive impact of Best-in-Class, cost guidance remains unchanged. Now, going to Turquoise Ridge. Turquoise Ridge has done well. It's a great example of our successful efforts to increase through-put while maintaining costs to achieve significant productivity improvements. Strong performance across all levers with significant increasing gold produce combined with reduced cash and all-in sustaining costs is the story.

Gold was up 60%, 50,000 ounces in the first quarter, 79,000 ounces in the second. Similarly, cash costs were down 20% to $4.86 per ounce, and all-in sustaining costs down 15% to $6.21 an ounce from the previous quarter. You'll recall in the last call we outlined our focus area for Best-in-Class and they included improvements to capital labor and planning efficiency. To give you example of this in this quarter, a number of these were delivered at Turquoise Ridge. Increased number of mechanized top cuts. Which has resulted in more consistent all flow from the mine on a month to month basis. Change in the shift change, increasing face time. improved maintenance practices, increasing equipment utilization, and optimized development plan, reducing drifting and stripping. Combined with improved ventilation from earlier investment that allowed throughput increases, the combination of all of those efforts has delivered the results that we've outlined, I am pleased to say.

And now welcome Bill McNevin, to his first earnings call as the new General Manager of Goldstrike mine. Over to you Bill.

Thanks, Richard. The Goldstrike continues to perform in line with guidance and expectations. Gold production was up 5.6% from 249,000 ounces in Q1, to 263,000 in Q2 and this was primarily driven through (inaudible), 5.5 in the previous quarter. Improved weather facilitated mining tonnage, and we're up from have from 16.7 million to 18.2 million tonne in Q1 up to 18.2 million tonnes.

And operating cost declined, with lower open pit mining costs and reduced underground contracted costs. Increased strip at Arturo is on track and we expect to deliver first commercial production early this quarter. Regarding the TCM circuit. focus in Q2 has been on rectifying the physical issues impacting circuit performance and this is now adding significant value. Through these changes and focus on operations controls, the system is stabilizing and performance continues to improve. This is seeing recovery go up, and we're getting considerable better alignment with predicted recoveries. Now, Best-in-Class is our approach at Goldstrike for ore improvement, and focused across the whole property. The story I will tell today is a great example of that.

Now, Best-in-Class is our approach at Goldstrike for our improvement, and focused across the whole property. The story I will tell today is a great example of that. Historically in that open pit, we had a perceived technical limit on our oil truck utilization of only 79%. In pursuit of Best-in Class performance, this was challenged utilizing staff across all levels of the organization and changes were made. Excess trucks were shut sown and relief drivers were designated to keep these trucks operating through breaks, when traditionally equipment would simply be packed up. With this support there's a series of modular break rooms were put across the mine in strategic locations and this supported that process and looked after our people so since the start of the year, this has seen some very impressive results.

The mines achieve a 6% improvement in oil truck utilization and now we're tracking at 85% or higher. What this has meant is that from operating with a unit mining cost of $1.40 per tonne at the start of the year, we would now reduce that down to $1.25. Through the efforts of not just this and many other things we're focusing on, we're pushing to take that lower again.

Thank you, Richard. I will hand it back to you.

Cheers, Bill. And we're on to Lumwana now where you just came from. Now it's interesting to note that Lumwana just like what you've been describing at Goldstrike has had a steady performance in Q2, led now by Sam Ash.

Mining cost in the quarter increased with higher stripping. Mining costs per tonne were on target at $2.70 per tonne. The Mill relining operations in the quarter impacted tonnes process, and therefore, unit costs. But overall the mine produced in line with budgeted costs. In addition, the lower royalty structure signed into law in early June, we project will clearly have a positive impact all-in sustaining costs in the second half.

Moving from Lumwana down to Jabal Sayid. As was recently announced by our joint venture partner, Ma'aden, Jabal Sayid achieved commercial production on the first of July. During the ramp-up, as you would expect, unit costs will be higher and will not be typical of steady state operations. In that respect , we believe-we expect, forgive me, all-in sustaining costs to be at $1.65 to $1,80 per pound over the life of the mine. However, during this first six month ramp-up period, JS is expected to produce 20 million to 40 million ounces of copper and all-in sustaining costs at $2.80 to $3.10 per pound.

This production will ramp-up further to 100 million pounds in 2018 once underground development has been completed in the second half of 2017. With 50% of Jabal Sayid's production attributable to Barrick, full year cooper production guidance has therefore been increased to 380 million to 430 million pounds to reflect this change. Total copper, all-in sustaining cost guidance hasn't changed across that group.

Thanks, Richard. Our improved guidance demonstrates our progress year-to-date and our increasing confidence in the operational performance on our mines We're narrowing our cash cost guidance, reducing the top end by $10 an ounce as we improve productivity, particularly at the low-cost Cortez and Turquoise Ridge mines.

In addition we have again reduced our all-in sustaining costs guidance across the gold portfolio to $750 per ounce to $790 per ounce for the full year. And finally, we've adjusted our copper production outlook upwards to 380 million to 430 million pounds for the year.

So in closing, I am pleased that at the end of the second quarter we're tracking very well for the full year targets. We continue to deliver strong free cash flow and the outlook in this regard is improving. And with a combined success of debt reduction and improved operational performance, we are we are even better positioned to advance our multiple growth opportunities.

Thank you, I would like to open up the call to any questions.

[Operator Instructions] your first question comes from the line of Andrew Quail from Goldman Sachs. Your line is open.

Good morning, Kelvin, Catherine and Richard. Congratulations on a solid quarter. Just a couple from me. On the growth projects that you outlined on Investor Day, I wondered if we-- especially something likeTurquoise Ridge had a good quarter. Would we be expecting some sort of update on any of those four, especially Turquoise in the next quarter or two?

Well, Andrew, thanks very much for your comment. As we progress through the feasibility study, if things are material to -- we will but as you know Turquoise is progressing through the three-phased approach. As Richard indicated earlier, and in keeping with our relatively new practice over the last number of quarters of having the mine GMs and those responsible for the studies on the call, we have Nigel on the line.

Maybe, Nigel, can you give a word and update on the progress at Turquoise.

Yeah.

Thanks, Kelvin. Yes, we still believe in our three-phased approach on upgrading Turquoise Ridge, and right now we're in that first phase. We've increased the ventilation. We're pretty optimistic of continuing in that growth. Does that answer your question?

Yeah. It was more about the expansion, but I'm sure we'll get some update when it comes due. My second question is maybe to Catherine. We've seen a couple of your peers talk about increasing dividends or, and one actually increased it, is that something that's on the plate for Barrick in the next 6 months to 12 months?

Dividends are always on the agenda, but why don't I hand it over to Kelvin who can answer that question.

All right. Listen, Andrew, Catherine is right. The board reviews dividends every quarter. Our intention is to return Barrick to being a robust dividend payer. But in the immediate term, investors have encouraged us. They're focused on debt reduction which we'll do. But again, board will continue to evaluate this on a quarterly basis and weigh dividends versus debt repayment and other capital allocations. So rest assured, we're focused on it, but at this point, we're going to continue to drive hard on debt.

Okay. My last question in conjunction with it. You obviously talked about the sale process or intending the sale process of KCGM there's been reports in the last few days about monetizing or selling stake in Acacia. Can you guys give a comment on that?

Yeah, sure. Look, no change, Andrew, in terms of Acacia. Even clear it's a very valuable asset, but non-core. There will be a point in time when there will be sellers if we see full value, but otherwise, we don't comment on market rumor or speculation as you expect.

Okay.

Thank you.

You're welcome. Thanks very much.

Your next question comes from the line of Jorge Beristain with Deutsche Bank. Your line is open.

Thank you, guys, and congratulations on a solid quarter. I guess maybe just following up on the earlier question. You can't comment obviously on your sales proceeds, but they're in the public press. But if one was to occur, does that change anything on your balance sheet equation in terms of perhaps starting up growth projects again, I'm thinking more Pascua-Lama or any other of your JVs?

It doesn't really change anything in the sense that we're progressing the growth project in any event. Those projects and feasibility, Turquoise is now out of it. The other work we're doing on Alturas, Goldrush, et cetera. So the non-core asset sales that maybe contemplated really won't make a change. We're going to move those forward. Of course, we're using the same metrics, $1,200 long-term gold price and the same internal hurdle rate for those investments. So I wouldn't link the two.

Okay.

And then maybe just a technical question on Veladero, seeing as you incurred these 29 days of weather. You budgeted eight. Is the gold effectively lost for this year, from weather, does that get made up in next year, or would you simply now be budgeting a more conservative weather days budgeted into 2017?

Listen Rick Baker is on the line, GM at Veledero, and so I will turn that over to Rick specifically. Thanks.

Thanks, Jorge, thanks for the question.

Thanks, Kelvin. Jorge, thanks for the question. Yes, some of the ounces will float over into 2017. As you can imagine, with the weather impact, it floats things backwards, so December floats them to Q1 of 2017. And we will review the number of weather days that we use for planning and budgeting going forward as a result of the storm. Noting that as Richard noted, you have to go clear back to 2007 to find a storm of the same significance in the history of Veladero.

Thank you. And if I could just get one last one in. On Pueblo Viejo, you talked about this, the new experimentation with the autoclave setup. And you did mention on a tonnes basis what the possible incremental throughput could be. Could you just give us that in terms of ounces at 100% as to what kind of increase we would be talking potentially for ounces if you would apply that new process to all four autoclaves?

Jim, I am going -- sorry, Jorge, I'm going to ask Tim Dimock, the ADGM at PV to answer.

Hi, Jorge, this is Tim Dimock at Pueblo Viejo. Yeah, so with the increased availability that we are getting from extending the time between down to 240,000 tonnes. So at today's - the grades that we're producing now, that's about a 25,000-ounce increase.

And that's for the-- at 100%?

yes. Correct.

Thank you very much.

Thanks, Jorge.

Your next question from the line of John Bridges with JP Morgan. Your line is open.

Good morning, everybody, and congratulations. We've been hearing the press comments about restarting of Pascua-Lama. I just wondered what your view was on that - that potential?

Sure. Thanks, John. Listen, on Pascua-Lama, as we indicated, I think on the last call, we've been working on an optimization study. First of all, we looked at what it would take to complete the project for the original design, we're thinking of with what capital efficiency could we plan in that context. More recently, we've been looking at if we weren't constrained by the original design, and look creatively at other options, (35;16) considering perhaps underground, starting one process train the Argentinean (inaudible) side and generating cash flow for the rest.

So that work is underway. We'll have a better sense that towards the end of the year in terms of reporting back to the board. And so we don't want to get ahead of ourselves, but the thinking is if we could restart Pascua-Lama as a stage concept, kind of minimize capital upfront, generate cash flow and move forward on that basis, it would be interesting something that we want to explore. We don't want to get ahead of ourselves, but that's the general thinking.

So what level is that? Is that scoping? Not feasibility or anything like that yet, righting?

Scoping, but as you can imagine we have a lot of data in Pascua-Lama given our long history and the fact that stripping proportion is already built but in terms of the optimization work we are looking at, now, you are correct, that is scoping level.

What sort of grade could you generate from an underground deposit down there?

Well, early to comment and I don't want to get into specifics, but certainly we've been looking on the lama side, there is areas that are high single digit, low double digit grade. And actually, I've got Rob Krcmarov. Rob know the deposit. Well, maybe, Rob, you can comment.

Sure, they are high grade pockets of gold and silver, and there are significant areas that might be up to 3,000 per tonne.

Great. Appreciate it. Many Thanks

The next question from Stephen Walker of RBC Dominion Securities. Your line is open.

Thank you and good morning. Just a question for Catherine on the capital allocation. Catherine you mentioned that there is $125 million in capital savings year-to-date, some of which is direct savings and some of this is deferred. Catherine, two things that could we expect further capital savings as the year progresses in H2? And then how would you break out the split between what is actually a unit savings in capital versus what is being deferred? And is that - do you think that split can be maintained should there be further capital savings in the second half of the year?

So, good question. We spend a lot of time trying to understand exactly how these CapEx savings are coming through. And as I talked about, through our analysis we can see that around a third is coming from actual sort of structural removals of CapEx. Just to give you some more sort of specific numbers and we've got around $43 million coming from actually just changing the prices, lower prices for material (inaudible) the Best-in-Class processes, renegotiated contracts through the fact that we see deflation versus some of the assumptions we are getting those kinds of improvements.

We then got improved assumptions, so we added continuity that actually hasn't been required and then we changed the scope of actually the CapEx that we're spending. So do we need to do shovel maintenance, et cetera, et cetera? So around a third of the improvements that we've seen and for the year versus our initial guidance come from that. The remainder then is a combination of deferrals which is just we're not going to be able to do them in 2016, so they've moved them to 2017, plan changes. So an example would be spending at Turquoise Ridge on the third shaft. We're not doing that because we don't need to do it this year, because we're delivering that production improvements versus our original budget.

And then it's actually through plan optimization. So the example that we had on Pueblo Viejo is a good example of that changing the maintenance of the autoclaves. So that just gives you a sort of background to those improvements that we've seen. So moving into the second half of the year, we do see that CapEx increase, and there may be some slippage if we don't get it all done, but given that we can see what our expenditure is going to be, what has been approved through the investment committee to date, we're relatively confident that our guidance range is appropriate. And then it's actually through plan optimization. So the example that we had on Pueblo Viejo is a good example of that changing the maintenance of the autoclaves. So that just gives you a sort of background to those improvements that we've seen

So moving into the second half of the year, we do see that CapEx increase, and there may be some slippage if we don't get it all done, but given that we can see what our expenditure is going to be, what has been approved through the investment committee to date, we're relatively confident that our guidance range is appropriate.

Okay. Thank you. That's very helpful. And maybe if I might ask Richard a question, when you speak about, the pushing beyond technical limits and pushing out maintenance schedules or re-examining pit slope stabilities and operating assumptions that have been in place for some time, can you talk a little bit about the internal audit or external audit process that could happen or would happen normally when you start pushing normal technical expectations, whether that's at an autoclave or whether it's within an operating assumptions around slope stability and so forth.

Yeah, sure. Firstly, in terms of the process by which we review these opportunities and then book them into forecast/plan is every month shared by Michelle Ash, which is all about technical staff involved. The proposals that are identified on the ground some which are advised by our technical staff. The majority of that comes from the guys on the ground, their technical teams. I'll review in detail in both in terms of their viability and also in terms of their risk. And so whenever something associated with no sticking in the pit walls, that's to be the case in Veladero, or adjusting the technical dimensions of the autoclave, the full technical audit associated with risk is conducted before it's executed.

The autoclave is a good example. External contractors came in. We assisted in advising the change. And as Tim Dimock will know, sitting there at Pueblo Viejo, we didn't execute on anything unless both us as well as contractors, as well as the designers were 100% happy that this looked like it would be sustainable. So with respect to the general principle of pushing technical limits, what we're finding here, in general, is that technical limits assess on what would be achieved in previous years on a straight-line basis, and that's just being rolled forward, rather like our capital budget, next.

And then we were asking people to see what it is one can do, we're starting to find but if you remove the straight-line basis assumptions and then start looking at innovation, and looking at improving labor intensity and capital intensity - in other words doing more with less people, or a lot more with less capital, we're finding previously set technical limit is broken through. The driver for that, of course, is doing benchmarking comparisons between mine sites to see if he has got the best performance and seeing if he can raise it across our own operations. And where data is available externally, he's benchmarking to other company, as indeed is a standard business improvement process in any mining company. But the hub of your question, I believe, is associated with are we taking risks when we push technical limits? And the answer is not in an unsustainable way. But everything is examined in great detail before it's locked in into the plan and before it's then locked into our forecast.

Richard, thank you for that. And thank you for bringing it back to risk management. That's all the questions I have.

Thanks, Steven.

Your next question comes from the line of David Haughten with Imperial Bank of Comm. Your line is open.

Thank you for the conference call.

Good morning, Kelvin, and team. Thank you for the conference call. As you've noted, Q3 is going to be a heavy spend for sustaining CapEx. Are there any particular operations that we should be keeping an eye out for, for a particular lift, i.e., significant lift in that spend?

David, thanks for the question. Catherine, you probably are in a position to respond to that best.

Yeah, I think - yes and no. Across the board, we're seeing some of it, but I think we just had - with my recollection we've seen some CapEx increase at PV, that's what - but I can come back to you with some more specific answers on that. But when we're talking about an increase in CapEx, it is done on a measured basis. So it's spread over the two quarters. And really the basic evolution is very much more around how cash flow evolves in the second half of the year as well.

Again, just to add something, the guys on the ground here. But with Goldstrike transitioning more into underground mining, you will see a little bit more high development costs within Goldstrike.

And Turquoise Ridge, obviously, and now we can talk to this, because the nature of the ore body is pot light. There's a requirement for increased capital to ensure that the drifting is done between these pots as well as significant ground support. But in terms of it, there's no particular mine who is going to be outstripping others in terms of capital spend through Q3. It's just happens to be where the capital spend is lying.

Okay. So a little bit of CapEx spend everywhere. Nothing really standing out except for the few that you mentioned.

Yeah, that's right.

Seeing now that Bill MacNevin is on the line, and maybe I could ask about the TCM. Saw that the recovery in the slide is getting to 64%. Wondering how you see it moving towards the ultimate goal up near the 80% level?

David, we had a very good quarter in terms of - I mentioned 2016 a lot of technical issues and technical constraints. So, it's been rectified and the process works with a lot of the focus on just better operations, controls. We'll see ourselves getting the predicted recoveries. And let me clarify predicted, because predicted is driven by both the grade worth saving as well as the proportion of acidic or carbonaceous or - so when we initially looked at this circuit there had been sort of saving some of the higher grade material, these days we are prioritizing that higher grade material

So, don't expect to see us having numbers that we suggest with the recovery, not because the recovery won't be going well, but because we're feeding a lower grade material. So in the low 70%s, around the 70% mark is what we will be getting more so driven by the grade and also the blend of acidic and carbonaceous. So we'll be performing to expectations.

I understand complex chemistry here. What about the through put. What kind of rating are you getting as a through put on the TCM?

We're starting to - we've had some issues with reliability with the circuit, which we're working on, but we're achieving the throughput that was planned. We put a secondary crushing step, a temporary step in front of the combination circuit and that's working well. So, we've shown we can get the flow-through now. It's just about working on some reliability. So, we've achieved what we needed to do now we have to do it consistently. We're very happy with what's happened there.

Thank you, Bill.

Your next question comes from the line of Kerry Smith with Haywood Securities. Your line is open.

Thanks operator. So just on TCM to follow up on David. Are the costs still far in line with what you were budgeting?

Kerry, the costs are slightly over where we were budgeting initially. Some of that has got to do with still rectifying some issues as we talked about correcting some of the physical constraints and also we're still doing some work on optimizing the water circuit, and that impacts on reagent costs. So at present, we're still running above what the initial expectation was. But we've got clear plans and projects to rectify that. So expect us to get to that albeit early next year.

Okay. Kelvin, or maybe Catherine, just on your target of $90 million of annualized G&A saving. You say you are on track. Where you at today in terms of what's actually been achieved?

Thanks Kerry. Catherine has got the data on that. Catherine?

Okay. So when we talk about these annualized savings that we now report G&A, we're looking at how we are reporting back at the end of 2014. So versus 2014, we're already at a situation where we are over $90 million of core cost savings for 2016 based on our forecast. So that's sort of fulfills that obligation. We can't see it in the way in which we report G&A now in that we are allocating a lot of the corporate G&A. But that just reiterates that number.

With regards to G&A going forward, I think we are keeping a watchful eye on it. But there are some deliberate spends as well as some uncontrollable spends that are going to be influencing G&A and leading it to ebb and flow. The first is obviously the impact on share price. So it's obviously a good thing for our shareholders, but as the gold price rises as we deliver strong results, what we're seeing is that the share price contribution is now influencing our G&A going forward.

And then the second thing is around our business improvement work, which is that both with Best-in-Class and then digitization as an element of Best-in-Class, we are looking at re-sourcing that. We do so with discipline and we do it with the intention and ultimate aim of reducing our overall costs and increasing cash flow, but that will start to influence our G&A as we move into 2017.

Okay. So I think what you're saying is you have already achieved $90 million in savings and the reason I ask is the corporate G&A, excluding stock based comp in Q1 versus Q2 is actually up a little $4 million. So I am just wondering, what the longer term target then is for the corporate G&A excluding the stock-based comp?

Sure, it's okay. Maybe I'll - Tim, if you are on the line still, I'll turn that over to you, please.

Yeah. So we made those modifications in our May shutdown, so it's been a couple months. Things are looking well. We're pretty confident in the design modification.

Just a technical question. How do you know that the modifications are working? How do you monitor it? Because you don't shut the autoclaves down?

So we're able to do a thermal scan outside of the autoclave, and we can determine if an area is building scale from the scans.

Okay. I gotcha. So far it looks pretty good. Thank you.

Thanks, Kerry.

Yeah, thank you.

Your next question comes from the line of Anita Sony with Credit Suisse.

Good morning. I want to ask a quick question, with regards to Pascua-Lama. Could we get an update on the progress there and what you're doing in terms of the study and plan to release anything.

I didn't get the last part of your question.

Sure. So I was asking about Pascua-Lama and what the progress you have made there in terms of an optimized study and when you plan to publish some of those results?

Okay. Well, thanks, Anita. In fact, I am glad you raised Pascua-Lama because Jorge raised - discussed a little bit earlier and Jorge just to go back to your question about potential underground grades; put a little more color on that. There's certainly - on the Lama side, there is some pockets greater or around 9 grams per tonne overall, that's preliminary, of course. But overall, more in the range of 6 grams per tonne, and about 50 grams per tonne silver, just to give you a sense.

And Anita, your question on the work of the optimization, making good progress. It's underway, it's scoping level at this point, and we think that by the end of the year, we'll have a pretty good sense of how things are looking. I don't know at that point we'll be in a position to disclose it to the market, but - and Pascua-Lama was one where - as we've indicated before, we wanted nothing before it's time. So we're going to look at it carefully, make sure that we understand well, what the optimization would look like. But that gives you a sense. We're making good progress and starting to just kind of narrow down what the options could look like

Okay. Thank you very much.

You're welcome.

There are no further questions at that time.

I will turn the call back to the presenters.

Well, thank you very much, operator. And given there's no further questions, we'll bring the call to a close. We look forward to updating everybody on our third quarter progress in October. In the interim, we ask everybody to be there. We would like to wish you all a very good summer. So thank you very much again.

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