Osisko Development Corp (ODV) 2021 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Osisko Development Q3 2021 activities conference call. (Operator Instructions) Please note that this call is being recorded today, November 10, 2021, at 9 AM Eastern time. Today on the call, we have Mr. Sean Roosen, Chair of the Board of Directors and Chief Executive Officer; Mr. Alex Dann, Chief Financial Officer and Vice President of Finance; Mr. Chris Lodder, President; Mr. Luc Lessard, Chief Operating Officer; and Mr. Jean-François Lemonde, Vice President, Investor Relations.

I would now like to turn the meeting over to our host for today's call, Mr. Sean Roosen. (Spoken in French)

Merci beaucoup, operator. (Spoken in French) In terms of where I'm sitting today, unfortunately, there's some background noise; we have construction going on next to the office. So I apologize if we have too much construction going on in the background. Feel free to ask questions in either English or French as the team on the line today is completely bilingual; take advantage of the moment to use that opportunity.

And I'd like to get into the results that we are presenting for Q3 today. As we know, we launched this company in the fall of 2020 as Osisko Development Corporation, and we have made quite a bit of progress with both of our flagship programs today, both in the Cariboo Gold project and in Mexico. Please note that we will be referring to the company probably as ODV or ODEV throughout the presentation, which is short for the Osisko Development Corporation.

Before I discuss the management's results, I would like to remind participants that all amounts discussed in the presentation will be denominated in Canadian dollars. And also note that the statements may include forward-looking information and future-oriented financial results regarding ODEV/ODV, and its business's disclosure just regarding the possible events, conditions, or results that are based on information currently available to management which indicates management's expectations of future growth, results of such operations, business performance, and business prospects, and opportunities. So we have to provide these cautionary statements to you.

Such statements are made as of the date hereof and the company assumes no obligation to update, revise them, or reflect any events or results, disclosures or circumstances, except as required by applicable securities laws. Such statements involve significant risk uncertainties that are not guarantees of our future performance or the results, as a number of these significant risks and uncertainties could cause results to differ materially from the results discussed today.

Given the risks and uncertainties, one should also place undue reliance -- not place undue reliance on these statements and information. Please refer to the risk factors, forward-looking statements, and future-oriented information in the sections of our public filings, including, without limitation to our Q3 2021 financial statement and MD&A, our Q3 2021 earnings press release; and for information purposes, filed on SEDAR.

Yesterday, we released a third-party quarter 2021 results. Before we get into the financial results, I wanted to update the company -- update you on the company's achievements and milestone since the go-public launch in late 2020. Here are a few of the highlights.

ODEV has raised approximately CAD253 million via private placement since the inception of the company in 2020 and completed those financings in early 2021. Capital raises were accomplished by -- on the back of our strong management team and reputation for building world-class lines. The funds are enabling ODEV to accomplish many of the goals in the mining exploration development of both of our flagship projects, Cariboo Gold project in British Columbia as well as San Antonio in Sonora, Mexico.

We will start with Cariboo, on the first nine months ending September 30. Approximately 152,000 meters of exploration and infill drilling occurred at the Cariboo project, an outstanding accomplishment given the backdrop of COVID. The results to date have been successful and encouraging, and mineralization expansions and discoveries have continued, as we chase the mineralization, and the deposits demonstrate the growth potential. The continued success at the drill bit is really the driver of value for shareholders as we get further into the piece, and we've only touched the surface when it comes to exploration on these projects.

The encouraging drill results will, in our opinion, enhance the results of the feasibility study. And as we work closer to getting from resource to reserve, these are important pieces of the puzzle in terms of the infill drilling that's ongoing. We are looking to complete that study now in the second quarter of 2022, in conjunction with the permitting process that's underway that we are expecting in the second half of 2022. So things are lining up pretty well. And hopefully, we've got a lot of the work done now and we've got the bulk of the drilling that we need to produce that reserve level study and get into the next level of this project which will be Phase 1 commissioning and construction of a significant gold mine on the Cariboo site.

During the quarter, drilling activities continued up to 11 drill rigs operating at one given time. The test-the-mine operations commenced at Bonanza Ledge, with over 81,000 tonnes of ore mine. Then the recommissioning of the QR Mill was another big milestone; we recommissioned that mill site. And we also used a lot of the work that we did at both the underground and QR to further our progress on the overall permitting process, and we'll talk about that a little bit later.

And as we continue on, having a fully-commissioned gold project, including cyanidation and tailings ponds at QR, is a particularly large asset in this day and age for the shareholders of the company. Significant expenditures were also made during the year in the treatment plants on the mine sites.

On the Quesnel River, we installed a brand-new water treatment facility, or treatment processing, that allows us to make sure that the water that we are discharging is higher quality than what we are taking in. So pretty proud about what we've been achieving on ESG and the environmental side of that project as well. A new concentrator equipment was also purchased. We bought a SAG mill and ball mill set-up that is now located at the Prince George site. The equipment is brand-new, but never installed from 2013; 7,500-tonne-a-day capacity in a combination circuit. So that's a pretty big thing to have in our hand as we go into what is continuing to be an accelerated cycle, and allows us to play defense against supply chain expansion and inflation. Having that equipment now, I think, has turned out to be a pretty good strategic choice.

Feasibility is advancing towards 4,750-tonne-a-day operation, and we remain optimistic that we'll be able to expand that project in the future, with continued success at the exploration up and down the trend. We've had mining operations ongoing at Bonanza Ledge II, which is a smaller project outside of the main Cariboo project. And we can't mine within the Cariboo project at this point in time because we're still under a final EA process. So we have a small-scale mining permit there that allows us to continue to mine there, and we've used that site to develop our workforce, our knowledge, our relationships with the regulators, and also to test some of our equipment, and also to make sure that we have an understanding with our communities of how we work there and then what we get done.

So it's been a pretty big success in the overall life of what we think is the permitting cycle for the project, and to get to the bigger prize which is the larger mine that we are permitting at 4,750 tonnes a day. We believe that the Bonanza Ledge II main permit is crucial and required in terms of our way into the larger-permitting area for the Cariboo project that we hope to achieve in the second half of 2022.

We also were able to test mine the BC Vein structure, which is over 18 km long, and to be pretty confident that that's something that we can add to the overall exploration targets, because it wasn't included in the original resource or exploration work, but it does represent a significant piece of upside for shareholders. And previously, we weren't sure whether we could mine there or not, but the success that we've had at Bonanza Ledge II, even though we are going to be announcing a [right hand] today, provides confidence that we can continue to look at BC Vein as a potential upside for the overall development of the Cariboo Gold project as we get further into the piece.

We are also able to take care of some of the PAG pile, the potentially acid-generating pile, by putting that material underground. And as we develop BC Vein too, it becomes a more critical and integral portion of our commitment to our environmental standards to make sure that we run the best project we can by cleaning up those historic operations. And to -- our ESG strategy is to reduce our footprint, reduce our overall use of groundwater and contact water. So a pretty good development on that front from where we stand on ESG. Unfortunately, from the current accounting and engineering standards, we're going to have to report a loss on this project, but we see it as crucial and significant to the development of the overall evolution of value for the Osisko Development shareholders at Cariboo.

We also worked hard with our partners at Lhtako Dene and Xatśūll, Williams Lake and first partners -- First Nations partners throughout the pandemic in terms of what we could do to support those communities and to make sure that our partners understood that we are long-term partners, that we are here for the good, for the bad, and for the tough. And I'm very happy with some of the friendships and community relations that our team and the communities have been able to develop throughout what has been a challenging time for all communities. So congratulations to everybody involved in that, and we look forward to this project being a leader in terms of sustainability and First Nations relationships in central BC. I think that we have an opportunity here to do something that maybe hasn't been done for a while.

As we look forward, we've also been able to initiate a couple of legacy projects which I'm particularly proud of as [an old statesman] myself. We're happy to announce the Southern Mountain Caribou legacy initiative. We'll be providing land donation as well as contributing to manage the cows and calving operations to produce -- to protect the cows and calves during the early years when they are vulnerable for predators. We've also been able to initiate the Bowron River Salmon Enhancement Program, where we're going to be looking to release salmon roe and get involved in the headwaters of the Fraser River.

And I think that, from myself, having been involved in salmon preservation for over 20 years now, it's particularly fulfilling. And I'm pretty happy to be able to talk to my First Nations partners about these legacy projects because I think we're all excited to do it and it's a pretty good opportunity to participate in one of the great salmon resources of the world. And we've been able to achieve and purchase a site that's somewhat unique, and we'll be looking to highlight those legacy projects as we move forward and certainly part of our commitment to ESG as we move forward. And happy to be also -- within the Osisko group, we've announced the Carbon Streaming Corporation through [OR] and we've also announced the Green SPAC, the Osisko Green Corporation. So we've had a pretty big year so far in terms of our commitments on ESG, and we're going to continue to drive hard to try and be a leader in this space.

Very happy also by the support that we've received from the BC government. In particular, Premier Horgan has leaned in and supported this. And I think it's a big move forward, that we have these legacy projects and that we have this kind of progress on ESG this early in a project like Cariboo, and very proud to be part of it, and also very proud of the team and the work they've done to get us where we are, and the work that our partners are doing, to make sure that we are the leaders in ESG for central British Columbia as we move forward.

Although we had a significant amount of challenges during the pandemic period, like everybody, we initiated on-site early testing, purchased our on-site lab. We invested time and money to try and make sure that our employees and our partners and our communities were as safe as we possibly could be. But the impact of COVID-19 on everybody, on the supply chain, on our talent pool has had its effects, but I think we came through it relatively well compared to most. So we feel that the permitting cycle as we head into the final stretch here, into 2022 -- we are the first ones to go through this permitting process in BC for a brand-new mine.

It's a pretty complex process, but our partners in the regulator side within First Nations and within our group have been able to keep things on track during COVID-19, which I think is remarkable that we've been able to do so. We received a 10,000-tonne-a-day -- 10,000-tonne bulk sample underground permit, which allowed us to initiate 2.1 kilometers of underground development.

We're using some new technologies there that haven't been seen in gold-mining in BC before with our electric roadheader, which we also commissioned earlier during Bonanza Ledge II, and we've also purchased a brand-new ore sorter which is currently being installed on-site. So we've been making steady headway on making sure this is a project that has the highest standards in terms of environmental, and also setting course for the carbon net zero target that everybody would like to see. And certainly, we've made it an obligation for our team here.

The XRT ore sorter from Steinert is offering a lot of opportunity and may be the key to success for unlocking significant value in this 2,000-square kilometer land package as we move forward. So it's been quite a bit of science on that side, and it's going to require more work to make sure that everybody understands it; and then from a shareholder standpoint, that the technology is going to deliver what we expect it to deliver. So that work is continuing underway.

In Mexico, we've initiated 45,000-meter drill program in the second quarter, with approximately 22,700 meters completed at the end of Q3. So Mexico is -- we haven't talked about it as much as we could, but you will see the intensity of information coming out of Mexico starts to increase as we get more drill results in. We have been highly encouraged by both the drill results in both oxide and sulfide resources, and we see San Antonio being a significant contributor to shareholder value as we get through to the end of the drill program into the PA study.

We've also initiated construction of a test pad there that's going to be in the Phase 1 stockpile. We have about a million tonnes of oxide ready to go, which we hope to be loading near the end of this month, early next month, and should provide early production from leaching operations there in 2022 as we get that project underway. But happy to complement the management team in Mexico for having done a great job of achieving, not only the permitting, but getting the construction done to make that leach mine go forward. And we continue to see success, both on the permitting side and as well as the development side in terms of how we've been able to get the acquisitions for land use and as well as our partnerships with our Ejido communities in the area moving forward. So all that has gone pretty well.

The company will continue detailed plan to start processing the stockpile, starting objectives that have loaded with carbon, hopefully, in the first quarter of 2022. And as we see it right now, we have approximately 250,000 to 350,000 ounces of oxide material on surface, and 1 million ounces overall in terms of oxide and sulfide that we continue to have success at the drill bit, and we see this as an opportunity to continue to expand and to add value for shareholders as we move forward.

We will get into the Sapuchi project, which is under permit right now. And the larger Sapuchi project allows us to look at sort of a 6,000- to 8,000-tonne-a-day start-up project that we already purchased equipment for and has been delivered to Mexico. And we should be looking at the development of that project as we get further into 2022 and we've got a couple of permits there. But by all intents and purposes, that project has advanced extremely well.

And just as a further note, in terms of what we've been doing at ODV, within our equity portfolio, as you know, we maintained significant equities, we continue to invest in junior mining companies and other companies, and we've made some investments, and we continue to operate as an equity investor within the space. And we've been pretty proud of the other companies that the Osisko group in general has been able to sponsor and the success that we've seen around those companies. And we congratulate all of our partners within the accelerator group of investments within our equity book as we move forward.

And I'll pass it on to Alex Dann now to take us through the Q3 results, and then we'll come back to a Q&A at the end. Alex, over to you.

Thank you, Sean. And bonjour, good morning, everyone. As Sean touched upon, we made significant progress towards our goals in the first nine months of 2021. In the third quarter, we realized gross revenues of approximately CAD3.9 million from the sale of 1,640 ounces of gold, which is an increase of 1,325 ounces compared to the prior quarter. The company had approximately 824 ounces of gold available-for-sale as of September 30. And these ounces, combined with additional gold produced, will be recognized in revenue in the fourth quarter.

In the third quarter, the company incurred a net loss of approximately CAD31.7 million, or CAD0.24 per share. The main driver for the loss is the impairment of assets totaling CAD33.3 million, which is comprised of two amounts. The first amount is CAD22.3 million related to the Bonanza Ledge II project. Operational challenges occurred during the quarter, leading to lower production and revenues than originally planned, and management deemed prudent to revisit its mining and milling assumptions for the short-term life of the Bonanza Ledge II mine. The second amount of CAD11 million is related to the reevaluation of the stockpile in Mexico due to an increase in processing costs and a slight decline in gold price as of September 30 compared to June 30, 2021.

G&A expenses for the quarter were approximately CAD6.9 million, compared to CAD1.2 million in the prior year quarter. The increase in expenditures is due to the ramp-up of activities and the workforce at all projects in the head office. Other income net of other expenses in the third quarter posted a gain of CAD5.3 million, compared to CAD1.1 million in the same quarter last year. The increase in income is mainly due to the recognition of the premium on the flow-through and charity flow-through share issuances that were completed in the first quarter of 2021 and also some foreign exchange gains on US dollar balances held by the company.

Our cash and cash equivalents balance at the end of the third quarter was approximately CAD72.1 million. The main drivers affecting cash in the quarter were as follows. Cash flows used in operating activities of three months was approximately CAD2.9 million, compared to CAD1.2 million in the prior quarter. The increase is mostly due to the ramp-up of the G&A to meet operational requirements, offset by a positive change in non-cash working capital. Second component is the cash flows used in investing activities totaled CAD69.2 million in the third quarter, compared to CAD11.2 million in the prior year quarter. The increase is mostly reflected in the ramp-up of the Cariboo Gold project, Bonanza Ledge II, and San Antonio projects.

I will now turn the call back to Sean for closing remarks.

Thanks, Alex. As I've said, we've spent the money on these projects. We spent some money on BL II, which I deem as part of the permitting process and development process. It's not the way I would present it if it wasn't required for financial process, but the reality is we've invested -- we've commissioned the QR mill and we have a producing gold mine there. We will have a second producing gold mine by the end of the year in Mexico, and the strategy has been to get these projects into production as soon as we can, achieve as much early permitting success as we can, given the current environment for permitting.

I think that we've made significant advances. And I think the investment, on behalf of the shareholders to make these progresses in terms of small-scale mining, are significant in terms of clearing the way for the larger permits that we require for our bigger projects. That said and done, I think we're seeing that the gold prices has had a bit of a rise this morning, so I congratulate everybody on the gold space that's on the call.

And without further ado, I will open it up for any questions that we might have.

(Operator Instructions) (Spoken in French) Don DeMarco.

My first question, aside from higher throughput, is there any other scope changes that you are thinking about versus the 2018 PA? That is scope changes that might follow from insights that you've acquired from the exploration you've been doing that might change your thinking a little bit around the project opportunities to optimize it or add value in other ways.

Good morning, Don, and thanks for your question. Yeah, I think the infill drilling has been pretty exciting, if you look at what's happened in the Valley Zone, Lowhee. The opportunity to have a better starter zone and to really bear down on early-term revenue is opening up, and we are processing significant amount of drill results into the database right now. So I think the new and revised mine plan does give us an opportunity to revisit maybe how we develop the mine in terms of priorities.

I think the ore sorter confidence has gone up since we did the PA study; we've done a significant amount of work there. And yeah, it's definitely a project that's gaining strength as we look forward. And the infill drilling has done nothing but reinforce our belief that within the only 4 kilometers that we've explored so far, out of the 83 kilometers of trend, this is a mining camp, it's not a mining project, and there are a significant number of other targets that we can pull in. And maybe the overall scale of the project can be increased as we have more success in places like Lowhee, as we included in the original results (technical difficulty) gaining speed.

That's great. Yeah. Okay, that's very helpful and -- on several fronts. And then looking to the FS of course, and we are seeing some spending now in multiple areas, making progress. Is the spending that we see in Q3 -- does this potentially provide some offset to the Cariboo development costs? And maybe a follow-up to that, how do you see inflation? Inflation has been a common theme these days in mining. What should we be thinking about there as we anticipate the FS?

Well, I think the good news for us is a lot of our primary equipment has already been secured. We own the QR mill; we've been able to commission it. We did a significant amount of upgrades to it; it's ready to take up to a thousand tonnes a day of concentrate from what we would see as the primary concentrator. And we've purchased that original communition equipment from [Hoddig Bay]. We bought that 7,500-tonne-a-day process unit, so we'll have more than enough capacity at our concentrator in Wells. So we've tried to take the risk out of the inflation component.

Where we do see inflation is mining equipment. And also in terms of underground mine development, talent has gone up in price. So I don't have a number for you today, and we'll come out with a feasibility probably early next quarter, but I think more along the lines of operating and development costs as opposed to CapEx because we [may be able to lock down] quite a bit of the CapEx. So the fact we did this work during COVID in terms of getting QR ready and in terms of putting in place some of the issues that we have to and also securing a power line that we expect to be delivering power by 2023, 2024, we've been able to [sustain] a lot of the costs.

And hopefully, we've done as good a job as we can in terms of protecting from inflation, which I think is eminent in the sector. And in terms of being where we are, being on a grid power, being on infrastructure is the best way to protect against any of the inflation just by having that proximity to community. We are a 45-minute drive out of the town of (technical difficulty), which is a town of 20,000, and not having to deal with fly in and fly out also protects us in terms of the ability to build a cost-effective mine in this environment.

Okay. We'll look forward to that then. And my final question. While BC has been in the headlines a lot lately, we see after the Pretium acquisition, and ODEV is a name that has come up as a potential M&A target. When I look at -- you've got holdings yourself though in another company, Minera Alamos. And so could you give us some comments on ODEV's strategy with respect to Minera Alamos?

Well, I'll give you the strategy both from the ODEV side and on the Osisko group side. We've been incubators of companies, and Minera Alamos is one of our more successful accelerator companies. We made an initial investment in that company when it only had a market cap of CAD13 million. We continue to support the company, and we've been big fans of Darren Koningen and his crew and what he's been able to do in Mexico for a long time, and we congratulate them on their successes.

We've also made investments in other accelerator in early-stage companies, and we tend to go back down market sometimes when we can and try to get those things going. And we've been trying to work with groups like [Eriksprod] and some of the other crew and the early-stage investors and cornerstone investors and a lot of different financings as a group.

So we continue to be pretty active participants in terms of early-stage companies. And our simple philosophy is value is built at the drill bit; the rest of it is more of a de-risking operation. We continue to believe in that philosophy. We certainly congratulate Minera Alamos as being one of the more successful accelerator companies within the Osisko group. We sponsored them early on and we continue to be proud owners and we continue to support the management team in their efforts.

Ralph Profiti.

Thanks, operator. Good morning, everybody. Sean, I want to ask you something along the lines of the previous question, sort of inflation and supply chain, and I'm particularly concerned about longer lead time items as it pertains to the actual physical arrival of equipment on site. What's on the critical path there? And is there anywhere where we could be exposed?

I think one of the things we did do is we brought in the roadheader, the first brand-new one from Sandvik. We brought it in last year and we commissioned it this year. Based on the success of that program, we've confirmed two more and locked in pricing, which I think is the workhorse of this project that's going to be lateral development. We've looked at other mining equipment. We've secured the process facility, communition circuit with the SAG mill and the ball mills. They are sitting in Prince George. We locked that down early because we thought this inflation might come. So I think we're in pretty good shape, Ralph, in terms of what we can protect against.

And the biggest question will be what's the cost of electric equipment, the differential between electric scoops and trucks versus traditional, and the access to -- the power to drive those. And that's something that I think we got a huge amount of confidence back from the BC government in terms of their support for the decarbonization, the use of BC Hydro power. And I think we're in pretty good shape in terms of protecting our ESG component and staying as a dominantly electric mining operation and being a leader in that process in terms of being the first one through the permitting process. And certainly, I was encouraged by my discussions with Premier Horgan two weeks ago.

So we're going to do our best to lock down as much as we can in the supply chain, but that is also going to be subject to competition from others. But ODV is the first one through the permitting process under the new rules. So we're in pretty good shape that way. And we've been pretty, I think, nimble on our feet in terms of locking down the communition circuit and the primary mining gear. So that's what I have this morning, Ralph. It's a work in progress. We're working pretty hard to protect that inflation.

John Tumazos.

Thank you very much. Sean, how much cash do you need from September 30 to complete Cariboo? And will ODEV use debt for the completion or try to be debt free?

I think where we're going to sit, John -- and thanks for the question. I was very glad to see your comments on the rest of the assets in the Osisko group and very happy that you got a chance to visit the windfall project there last week, or two weeks ago I guess it was now. But in terms of what we need to do, we're going to put out the feasibility study. I don't want to try and front run numbers. The PA study is out there, so I can really only speak to what's in the public domain right now. But you've known me a long time, John. We're going to optimize our project finance package in the best way we can, and we'll keep our cost of capital as low as we can.

I think the way the capital markets are working right now -- equity has been expensive, debt has been cheap, converts and hybrids are in there. And we also -- obviously, we are participants in the royalty and streaming space. Our cost of capital criteria, John, is going to be pretty strategic, but I'm not going to pronounce today how exactly that cocktail is going to work because I can't predict the future any better than anybody else. But suffice it to say, there's a priority for the finance team at the Osisko Development level as well as within the Osisko group to optimize the cost of capital for shareholders. Because at the end of the day, this is going to be about the cost of capital. Unfortunately, I can't give you a clearer answer than that, but that's what I've got this morning.

Sean, if I'm pushing too hard, just tell me to stop. But this -- the money to complete the project, will the first digit be a two, a three, or a four?

What we've said in public is we are about 448 to go to 4,750 tonnes a day. I think that's the most public number we have out there. Obviously, we're fighting hard to contain any inflation numbers. Until we have a better number for you, that was the number that we had. Some of the costs that we've incurred on the commissioning of QR, and probably somewhere around 50 million to 70 million, depending on how the accounting works out, would be deductible from that number from where we sit today. And certainly, the way we are approaching things is to try and get to the earliest form of payback that we can. But I think we are relatively low-cost number. And if you convert that into US, we are coming in around the [375 to 390 US] in terms of the CapEx that we publicized so far and what our expectations are to achieve that 4,750 tonnes a day. So hopefully, that's accurate enough.

Sean, thank you, thank you. If I can ask another. You've done a good bit of infill drilling and exploration drilling, both at Cariboo and San Antonio this year. Presumably with the more drilling, there is going to be more tonnes of resource and more ounces at both locations. Is it reasonable to expect the tonnes to go up? And do you think the average grade will go up or down or be unchanged at each site with the data you have in hand?

Obviously, the target -- Cariboo is a world-class, big project, so drawing the line on what you want to use for cut-off can change that head grade. What we did see from the drilling in Cariboo is significant increases in high-grade zones, specifically Lowhee, Valley, and some of the stuff that we saw in the shaft zone. Grades are getting better with infill, which is always encouraging, because, as we all know, infill drilling has two outcomes, either the grade goes down or the grade goes up. We think we are making headway on that.

We're going to look at, also, some of the priorities around what the cost, the assets, those ore bodies are. And I think that the big takeaway is everything that we've hit in terms of the actual vein corridor mineralization, the average grade is set between 10.5 and 12 [rems]. So it really depends on the density of the veins within any mining block.

So this is coming down to a trade-off study between how you mine the block, how you mine the scope, when do you mine it, and how much material goes to the ore sorter as opposed to how much goes directly to the flotation process facility. So it's a complicated project from a general standpoint from that aspect. But keep in mind, we've only really focused on the first 350 meters here, John.

So the headline should be: all the veins are running between 10.5 to 12 rems. And then it just depends on whether we bulk tonnage mine them or whether we try and high-grade, and that will be the decider on what grade we run. But at the end of the day, we'll make economic decisions based on the lowest cost per ounce. And lowest cost per ounce, as you know us as bulk [traders and] miners from the past, doesn't necessarily mean you run the highest grade.

So we'll make that decision when we get through the feasibility study. But my hope is to maintain grade, and, if we can, especially, to increase it during the starter zones. So pay back as soon as we can is my number one criteria, and return on invested capital is what we're trying to achieve here.

Sean, excuse me for this question, I'm a little distracted by John's 90,700-gram intercepted windfall. Could you just refresh us as to the top cut procedure at Cariboo, and how many meters is the area of influence or how far out you project each asset?

John, I'm also a Founder and a Director of Osisko Mining, and it's been a very successful campaign of windfall, far more successful than all of us had even originally dreamed of. I think what we have at Barkerville is more continuity in terms of grade, and we are running at, I think at present, roughly 3 big groups of top cuts. And Chris Lodder, if you are on the line, did you want to say a word on top cuts, or --? We are top cutting in a pretty standard fashion. I don't think we're doing anything exotic here, but maybe, Chris, you want to be more precise.

Hi, John. Yeah. So the top cuts are based on [visits from intercepts] and they go from 10 to 15 -- 10 to 20 to 30 grams of low top cuts. We found that to get a more homogenous type ore body and reduced variability in the grade. That was the best way to do it. So yes, there's quite a population of high-grade still outside of that that we'll be able to look at as we start mining.

So with those relatively low top cuts, how much of the contained or -- was erased? What's the difference between the cut and the uncut resources?

I couldn't give you that right off the top of my head here, but it could be -- I'd have to look at that, John. I don't have it off the top of my head.

If we were going to make a guess, you think it's closer to 5% or 20%?

It's between 5% and 20%.

Give me a ring back on it or have your [QP checked].

John, I think the other discussion -- if we're going to go down this one -- is we've excluded a huge amount of mineralization, mostly the replacement zones that we haven't really been able to test from surface drilling, that we are going to know more about when we get underground. And I think there's some high-grade replacement zones which is historically what was mined here from 1864, 1860s forward, that we've excluded from the resource. And maybe, Chris, we can talk about what those high-grade replacement zones look like, because they are not included in this discussion, right?

Yeah, there is about 645,000 ounces of high-grade mine previously on [Cow] Mountain from these replacement zones. It's our low angle. These are hard to model into our vein corridor, so we'd only use the parts where they're intersected by the vertical veins and the rest is not included in our resource. So there is a whole upside there. They are typically 0.6 to 0.7 ounces to the tonne material, and were the main target of the underground mine. Again, because of the low angle and tubular nature of these things, they're very hard to define from surface drilling.

So very complete upside from underground. We do hit lots of them. All our -- pretty well all our vein corridors intersect them. But again, just because of the shape of them and their angle, it makes it hard to model from surface drilling.

And I guess if you drill that, your top cut procedure would reduce the results anyway.

I think it adds high-grade ounces in areas where we already have development planned. So me, I'm a mining guy, so there's two types of ounces. Ounces that you can grab because you're already there and ounces that you have to develop to go and get. So I think where we see the upside on the replacement zones is we can only identify those high-grade replacement zones economically from the time that we are underground. We made a strategic decision to pursue the [AA] process and the permitting process over at Cow Mountain, which is why we haven't been able to get underground. But as soon as we are underground, John, we are going to be drilling those zones. And once we are underground and in them, I don't think there will be a lot of top cutting required. We'll have mining access to them, so I think that's one of the big prizes that I want to get underground for.

By the end of next year, I want to be into those underground operations and seeing what these replacement zones can actually do in terms of providing those bonus ounces that we haven't included in the original resource. And as you know us from the past, we are relatively conservative. At Canadian Malartic, we drilled over 1.4 million meters, and that's one of the few mines in the world that has had a significantly positive reconciliation since drilling all the way through mining. So we tend to err on the side of conservative when we drill to, maybe, our detriment. But we also always think about the fact that we're actually going to mine these things. So we can be a little more conservative than some others.

Thank you. Looking forward to all the future developments.

Thanks, John. I look forward to getting you to Barkerville.

There are no further questions at this time. I would like to turn the call back over to the presenters.

Thank you very much, operator. Please feel free if there's any further calls to ring us up. And I appreciate everybody giving us their time today as Barkerville and Cariboo, very exciting, very big projects, and San Antonio is coming alive as we speak. So we look forward to updating you on the future success of these projects as we get further into them. Thanks, everybody.

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