Pan American Silver Corp (PAAS) 2003 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Pan American Silver Corp. first-quarter results conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following today's presentation. It is now my pleasure to introduce your host, Mr. Ross Beaty, Chairman of Pan American. Sir, you may begin.

Thank you, operator, and good morning, ladies and gentlemen, to the Pan American Q1 conference call. With me in Vancouver are Geoff Burns, President and new CEO of Pan American; Steve Busby, Senior VP projects; Andy Pooler, Senior VP Operations; Rob Doyle, our CFO; and Brenda Radies, VP Corporate Relations, and they're here to answer questions if there are any specific questions at the end of my own opening remarks.

We've got a lot to cover today. We are very, very busy, and there are four areas that I'd like to go over this morning in my initial remarks. Firstly management, secondly financial results, thirdly operations and project updates, and fourthly silver markets, including some comments from me on the controversy about alleged silver market manipulation. I will cover all briefly and then open the call to questions. I would ask that if you have questions, you try to limit your questions to one or, at the most, two.

First, I want to comment on our news release yesterday regarding the splitting of the roles of Chairman and CEO. This is simply good corporate governance. It is a trend in all significant companies across North America for good reason. And it is good management. Pan American is a much larger company now. We operate 4 and soon 5 silver mines. We manage over 4000 people in our operations and projects. We have four projects at the feasibility stage. Hence, our growth will continue to be strong for years to come. So there is a much larger management burden than there was just a few years ago.

Geoff Burns joined us a year ago to help with this. He has worked out extremely well, and best of all, his skills in the financial operations and administrative areas dovetail very well with my skills in business development, overall strategic management, investor and partner relations, and exploration. I want to state clearly that I intend to remain fully engaged with Pan American and do just what I've been doing since we began this enterprise 10 years ago. I am not retiring, and I am not changing my focus on building Pan American into the world's greatest silver mining company. So I see this as a final move in my efforts to really beef up our management team which began about a year ago. Jeff is very smart, very hard working, totally focused on results, and very capable of all the functions of President and CEO of Pan American. I think we will continue to make a great team as we progress the company in the future. To sum up, this is a very healthy evolution in the management structure of the company.

Moving to financial results. This morning we released our Q1 results; obviously, the best results we've had in years. Our only regret is that we were not able to shift the mountain of concinnate (ph) inventories that built up during the quarter in Peru, since if we had shifted, we would have reported the strongest quarterly earnings in our history. This will likely happen in Q2, though. As many of you know, shipping costs have gone through the roof in recent years -- in recent months, I should say. So concentrate dealers are seeking fewer but larger shipments to reduce this effect. Hence, the buildup of inventories. We shipped nearly all of the inventory built up at the end of March during April and early May, and so we hope this issue won't present itself again to the same extent.

Otherwise, we were very pleased with the operations results. Our production increased by 10 percent over last year. Our revenue almost doubled, and gas production costs went down -- per ounce went down. Those are very happy trends. We ended the quarter in the strongest financial condition we have ever enjoyed with cash of 142 million, and we generated cash flow from operations of about $3 million for the first quarter. Metal prices were strong, though as you know, they have declined profoundly since the end of the quarter, particularly silver. Nevertheless, all our operations showed strongly improved results in the first quarter, and I think these results are sustainable. It is a good time to be in the mining business these days and good to be able to take advantage of the strong metal spreads (ph).

We also have made a number of moves recently to further improve our financial condition. We have repaid all our Peruvian debt. We're in the process of repaying our Mexican debt. We have offered to convert all our convertible debt, and I am pleased to report that as of today, holders of about 71 million out of the $86 million total of our convertible debentures have converted into our offer. Full conversion plus repayment of our outstanding loans would leave the company debt free and eliminate about $500,000 of annual interest expense. We have no huge objection against having some level of debt, and may incur some again in the future. But when we see such low interest income from our cash balance, it makes sense to use some of our cash to pay down debt.

I am particularly pleased about the great turnaround at our Quiruvilca operation, where cash cost declined in Q1 to $3.02 an ounce for $5.46 announced a year ago. How about that? The best thing is I think this is sustainable, because it is mostly result of a management-led change in the mining plan at Quiruvilca last summer that resulted in our closure of the high-cost north zone. This drops tonnage production from about 50,000 tons a month to about 30,000 tons a month, but it increased the grade, reduced the workforce, and allowed many other operating efficiencies. The result, a more profitable mine and higher silver production relative to tons mined.

Of course, the secondary change that has helped Quiruvilca has been higher base metal prices, especially zinc. I expect both positive changes to continue for the foreseeable future. Another great result of a better environment at Quiruvilca has been a much improved safety record. May -- I should say March, for example, was the safest month in the history of the mine under our management. We've owned it now for nine years. And to add icing to the cake, we have just discovered a new vein at Quiruvilca which goes all the way from the deepest level of the mine right to surface about 500 meters vertically, and this will enable the good results to continue for at least the next few years.

At Huaron, we had poor months in January and February, due to bad ground conditions where we were mining. But March was a very good month and April even better. Our forecast is that production will remain strong during the rest of 2004, allowing us to more than make up the lost production from January and February. We have now completed our big exploration program there. I think we drilled about 12,000 meters to test a lot of targets we had inferior resources on, and we're going over the results now. Bottom line, we expect very good things when we redo the Huaron reserve number as part of the feasibility we are now carrying out into expanding Huaron production by about 30 percent. In fact, we're already embarked on the underground tunnel we needed for the expansion, and we expect to complete this work throughout 2004, leading to higher production later this year and next.

We have also found some vault mineable areas that should allow lower-cost mining when we are able to access them in due course. Huaron has been our flagship mine for the last couple of years, and I expect it will continue to maintain that position for a long time.

We continue to see very good results from our Peru silver stockpiles operation. You may notice in the Q1 results that our cash costs have increased there from $2.08 an ounce last year to $2.87 an ounce this year. This is quite misleading, as it suggests something negative is going on. The reverse is the case. You will see that our actual per ton cost is only 51 cents as compared to a revenue per ton of $47.82. This is because all we do is shovel the stockpile into a truck and transport it about 40 miles to a smelter. But our smelter agreement gives us value for only 65 percent of the contained silver, and we treat the other 35 percent as a cost when we do our cost per ounce calculation. So as the silver price goes up, our cost goes up.

In fact, we are happy about this because we still get 65 percent of the higher price, and that is the explanation of that strange result in the Q1 summary. In the first quarter, we announced the acquisition of the Morococha mine from a Peruvian group. This deal is still very much on track, but involves the reorganization of a Peru public company, relisting of its subsidiary, and formal proceedings to enable us to acquire the shares. The deal is expected to close now in June, and will result in us holding our third large Peru silver mine.

Morococha is an excellent fit with our other Peruvian assets, and we can hardly wait for the deal to close. The property has a great pedigree as a profitable silver mine even during tough metal markets, great potential to expand, excellent exploration upside, and a tremendous existing workforce that we will inherit. We expect to see about 3.5 million ounces of silver produced annually there at a cash cost of less than $3 an ounce. Our total silver production from Peru will then rise starting in July to about 10 million ounces annually.

Moving to Mexico, the ramp-up of our last Colorado mine is continuing. We had our best quarter ever in the first quarter, and we look forward to this being the trend for the balance of the year. We have just hired a new mine manager there, Mr. Dave Drifts (ph), who comes to us from another Mexican underground mine and who has excellent credentials as a mine operator. So we expect great things from Dave as La Colorada continues its development as our pure silver mine. Of course, we are continuing with feasibility work at Alamo Dorado, also in Mexico. We have resolved that the most efficient way to produce silver there is through a mill process rather than heap leach. As it increases recoveries and lowers heap leach risk, that is offset by higher capital cost.

So now we have to do some more metallurgical test work (ph) to optimize the flow sheet and finalize the capital and operating costs. This work is in progress, but we don't expect it to be completed now until the second half of this year.

Our two other feasibility studies were very active in Q1. In Argentina our Manantial Espegjo joint venture generated some spectacular (indiscernible) results including (indiscernible) 336 that ran 50 meters creating 805 grounds per ton silver and 7 grounds per ton gold, that equates to 165 feet, grading 24 ounces per ton silver and 0.21 ounces per ton gold, a pretty nice hole. And drilling continues as part of the feasibility evaluation.

We are also doing an environmental and permitting work, metallurgical work and detailed cost base. We have engaged all the necessary contractors to complete the feasibility study, and I hope it will be ready by early 2005 to enable a production decision at that time. Manantial Espegjo is an outstanding project, and we are really excited about its potential. It's about 50-50 gold silver, so along with the gold we will get from Alamo Dorado this will increase our gold and of course our silver production when it enters production in 2006 or so.

And finally in Bolivia, we have just expanded the drilling program that has been active there to about 8500 meters at our San Vicente project along with the (indiscernible) program that has been active for the last few months. Production began again at San Vicente in March on a limited scale and we are examining various alternatives to speed up the full-scale production plan there to take advantage of today's good metal prices. Bolivia is not an easy place to work, but we have been working successfully there for many years and are operating San Vicente with our Bolivian partner in (indiscernible).

So to sum up we are very pleased to be seeing much better bottom line financial results from our strong growth in recent years. It is also nice to have a strong balance sheet and no debt. Our lever is to silver prices is profound and will increase even more to the extent that we continue our mission of delivering greater and even purer silver production for our shareholders. We now have over a 800 million ounces of silver reserves and resources, and this also provides a great capital leverage to silver. It is a good time to be in the mining business. We have a great team of employees at all our operations and we look forward to continuing strength for the long-term.

So enough about the company. Let's talk a little bit about silver. After a stunning performance in Q1 and in early April where silver went to a 16-year high, silver has dropped sharply in price over the last month. Why has it dropped and where will it go from here? Well I think the why question can be answered quite easily. Simply put, a lot of the rise in the price over the last few months was from hedge and speculative investors who bought silver as a hedge against the falling dollar. They did not restrict (indiscernible) bought all commodities not only metal commodities but many other commodities, but particularly metal commodities and they all rose. Silver was certainly a stellar performer but all metals rose in the first quarter. When the dollar bottomed in early April, particularly the perception that it bottomed and especially after that when China announced it was taking steps to cool its economic growth all metal commodities pulled back sharply from their highs. Silver has significantly outperformed most of these on the way up and we have seen it significantly outperform on the downside, most of it on the way down. And this is partly because silver is a very thin market. It's about 10 percent the size of the gold market, and a small fraction of the base metal markets. So a little money in makes a big difference in the price and a little money coming out does the same on the downside.

So I got into some trouble last week with a group of investors who happen to believe that silver and gold prices are being manipulated. Some of these people also think it would be great for silver prices if silver mining companies withheld some of their production from sale or use their cash to buy (indiscernible) silver and held it instead. For the record, we don't share those views and particularly our money is meant to be used to find more silver through exploration, find more silver through acquisition of good silver properties and produce more silver to increase our leverage to silver prices. Our leverage comes in two forms, both capital leverage in terms of the value of our silver reserves and resources to the extent that silver goes up and income leverage to the extent we make more money on a daily basis if silver goes up from our production base.

If we have surplus cash we will give it back to our owners to use as they wish. If they want to buy silver themselves, that's wonderful. Our job, though, is to create wealth by deploying our cash as effectively as we can and pursue our mission to build for our owners an equity investment with the best possible leverage to silver. And we have delivered on that. We started Pan American from scratch 10 years ago as a silver company with the mission to become the preeminent silver mining company in the world. Our marketing capitalization today is about $700 million. That is good wealth creation by any measure. Yet the silver price today is only slightly better than it was in 1994.

It seems a little naive to me for some analysts to suggest that we should leave our silver on the ground and hold off producing until silver prices rise profoundly. We are a mining company. We are not a seller of dreams. If we do our jobs well we can create wealth whether silver prices go up or stay static. And we can be self-sustaining in contrast to the exploration companies who must continually live off their shareholders. In fact, after 10 years of growth in mine construction we are now generating good cash flow, and I hope we will be able to return to our shareholders some of the money they have entrusted to us over the years.

Finally, a few of these armchair experts (indiscernible) suspect pardon me a few of these armchair experts have I suspect any idea of the length of time necessary to build mines or the risk entailed in that process. (inaudible) as a mining company during the first quarter this year, Pan American actually received full benefit of the spike in prices that occurred then for the benefit of our shareholders. No exploration company did that. I simply don't believe in conspiracy theories for silver, and sorry if I have offended the sensitivity of some people when I say that. I believe that simple market economics can explain movements in silver prices without resorting to (indiscernible) illegal and utterly unfounded accusations of conspiracy.

Note that I do not extend this to gold since several bankers particularly have more ability to manipulate gold prices for monetary management due to the large holdings of gold by governments. So (indiscernible) the jury is still out on that in my opinion. Fortunately governments today hold very little silver and cannot use silver to manipulate monetary policy. Silver has great fundamentals, and these continue right now despite the sharp fall back in prices. Silver amount is broadly based and solid and industrial applications use silver's unique features as a conductor of heat and electricity as a (indiscernible) and so forth. These uses are increasing sharply particularly in the electrical and electronic sector.

Silver has broad use at a beauty level and silverware and jewelry; its use in this sectors especially rising in China where it has traditionally been in vogue. And of course it's used in photography as a continuing large usage despite the increasing use of digital imaging. We are finding, though, that the more digital images are taken the more silver back photographic paper is consumed. Don't forget that photo paper actually uses more silver than photographic film. In 2002 for example, consumer paper used consumer film paper used about 35 million ounces of silver as against consumer film which used about 31 million ounces of silver. So we predict minimum net loss of silver in the photographic industry looking out to at least 2008.

A much more important index of silver consumption in photography is actually how many holidays are taken in the world; in 2001 and 2002 there were fewer people taking holidays because of world events. We think this is picking up now and with it more silver will be consumed in photography. And don't forget too that only about 11 percent of the world is wired with access to digital technology. The real growth in conventional photography today is in developing countries with a large population that simply can't afford all the digital technology.

Tomorrow in New York the annual world silver survey will be released by the (indiscernible) mineral services. The London-based consultancy that does the survey each year for the silver institute. I don't know exactly what their findings will be, but I will bet that they will be pretty bullish statistics. My guess is that silver demand will shown to have increased strongly in 2003, and then silver supply for mines and scrap sources will show very flat growth. Those are both bullish fundamentals. This means the silver deficit will have increased from 2002 levels, further depleting world volume inventories.

Now gold sales estimates that above ground (indiscernible)inventories comprise over 600 million ounces of silver. This includes (indiscernible) and other exchange inventories, European dealer inventories and governmental holdings in India and China. Most of this silver is not for sale, however. At least below $10 an ounce. It is in fact very possible that are no more silver inventories for sale at low silver prices, meaning say below $5 an ounce. We think China has drastically reduced its enormous silver stores in recent years and its inventories and that's another bullish factor in the silver equation. And we know that (indiscernible) has dramatically increased their purchase of silver for investment over the last couple of years, yet another bullish factor. But its not a one-way street.

When silver prices went over $6 an ounce many of the industrial and silver buyers have simply stopped buying, and this is one reason we have had a pullback in price, particularly evidence indicates that the big silver markets in places like India, Turkey and Thailand just simply stopped buying when the silver price was over 6, and I think they're back in the market today. Bottom line, we have seen in recent months an extremely sharp increase in the silver price with a big influence from (indiscernible) buying. When marketing conditions changed in April a lot of the short-term players exited all positions in metals and currencies causing very sharp fallbacks in these prices. And in these markets.

Silver market today has gone from being overbought to being oversold. In the short-term the market has made up the margin so you have much influence from the cycle of investors in both sides. In the long-term the market is made by its underlying fundamentals of supply and demand. With growing demand, static supply and sharply reduced inventories it is easy to make a bullish case for silver. Of course, there will be volatility and silver is among the most volatile of metals. But I feel strongly that (indiscernible) the experience in 2001 and 2002 are behind us for a long, long time, hopefully forever and that we will continue to see higher prices over the next few years. In this context Pan American will continue to build its production base, continue to increase its silver reserves and resources through exploration and acquisition, and will continue its mission of delivering to its shareholders the best possible leverage to silver as an equity alternative to silver volume.

Last year we printed 23,000 annual reports. This year we are printing 36,000 annual reports because our shareholder base has increased almost 50 percent. I should also boast that our costs per report this year was only $2.10 compared to $4.05 last year. We did a budget version this year because I believe that fancy printed annual reports are really a thing of the past due to the Internet's capacity for giving the investors much improved and completely up-to-date information about companies. So our focus going forward will be to keep our website up-to-date and useful.

(inaudible) share trading (inaudible) two major markets, the TSX and the NASDAQ, has also increased profoundly. Today we trade about 2 million shares a day between the two markets on average. Our data (ph) to the silver price in 2003 was 6.6, meaning that for every dollar that silver rose during 2003, our share price rose $6.60. This year our data is much lower, and that is really not a bad thing as prices declined. That data, of course, is a good thing in a rising market and is not so happy in a declining market. But our perspective is long-term. We are building Pan American as the best long-term way for investors to gain exposure to silver and do not forget that all our active projects are viable to $5 silver so we don't absolutely need higher prices to make money and create wealth for our shareholders. Having said that we obviously certainly love it when the price rises because then we can deliver fabulous financial results to our owners.

We had a great first quarter this year, and I look forward to continuing strong results all year long. I've been windier than normal today and I think its time we put an end to that. I would like to therefore open the call to questions and you are certainly welcome to address your questions to anybody in the room. Thank you very much again, and will open the call to questions.

(OPERATOR INSTRUCTIONS) Bob Mendel (ph), private investor.

I would like to know what price silver has to be at so that the company is breaking even.

Geoff, do you want to answer that?

During the first quarter -- I am going to give you a bit of a laundry answer but -- but during the first quarter as we pointed out we had a buildup of concentrated inventory that we didn't get shipped, which would have certainly pushed this into a positive net income position had we managed to have that sold by the end of the quarter. We will see that income coming in in the second quarter, and I'm assuming you're asking that question based on that result. Long story we are at about a 550 breakeven all in including exploration, G&A and interest cost.

Okay, thank you.

(OPERATOR INSTRUCTIONS) Peter Strubby (ph) of Strubby Associates.

Two questions. Number one, you imply by your remarks about no green stuff, is that you're not going to make any kind of a --you're not going to use hedging at all as an aid to financing the future product and that you're going to stay away from the hedging process. And number two, with regard to the shakeup in China in terms of their credit control that sort of thing, does that mean that the development of silver mines in China that has been going on where they do a lot of shipping direct to India, do you think that that is going to be slowing that process down in the future?

Thanks for this, Peter. Two questions on to the first one very simply. We do not hedge, we have not hedged and hopefully we will not hedge in the future. Second question, is with respect to China I could go on about China for a long time, Peter. Not sure where to start. We think China has been the most negative, single factor in the silver equation for the last five years. Silver has dumped close to 300 million ounces of silver from its inventories that were buildup in the 1990s to the People's Bank of China on to the worlds of silver markets, mostly into India; that was their biggest market, that of course is the world's biggest silver market and that is where most of their silver went. From government stockpiles, okay? This was surplus mining production during the '90s. China produced about 55 million ounces annually and only consumed 20 or 25 million ounces so they built up this big mountain of inventory over that period of time, and decided in 1990 just dump it, and they did that. So it was a very, very negative effect in the world's silver equation in those years.

We believe and we got fairly good evidence to believe this that they have stopped selling silver. We think they may have stopped because they have no more silver other than this inventory. Now there is still is surplus mining production in China, though mining production has probably gone up from the 55 million number of a few years ago. We have had some very incomplete numbers or maybe they are complete numbers, but they are not broken down. The actual volume of silver coming out of China is probably over 100 million ounces, but that's not all Chinese silver. And so because China is expanding its lead, zinc and copper smelting capacity enormously in recent years, just phenomenally. They are now the smelting country of choice for lead, zinc, copper, aluminum, magnesium, all sorts of different metals. So for example, our Peruvian (indiscernible) some of that may be going to China, but it is not Chinese silver. So when you see numbers that show the quota of silver exports in China having now increased from say 50 or 60 million ounces a couple of years ago to over 100 million ounces now, probably those are correct. But again, that doesn't include how much silver has been imported into India by concentrate. Now we are trying to get better numbers, so the silver institute's has commissioned (indiscernible) to do a specific study on this and also we can pin this number down. It's important number because we like to really understand that part of the Chinese claim today in the silver equation. What is their true production, what is their remaining government holdings, and on the other side of the equation, what is the Chinese domestic demand, how is that increasing?

We have a lot of evidence, more or less anecdotal to say that their production has increased slightly, only slightly but that their demand has increased profoundly. Particularly demand in photographic film, Kodak has a huge factory in China, brand-new, they spent $1 billion on it and its the biggest seller of film factory in the world as far as I know. They are also expanding their production of silver chemicals for the electrical and electronics industries significantly. And thirdly and one of the ones that I am hoping that they will really take by the bull by the horn here is to expand the use of silver and jewelry inside China from a basis close to zero. This is something -- all these things take a little bit of time as we have seen in the last five or ten years in China and the timeframe in China is faster than it is almost anywhere else in the world, so they can make enormous strides very quickly if they put their minds to it.

And we think that's going on in silver right now, thus at the end of the day eliminating the surplus of silver in China (indiscernible) world markets and potentially turning that surplus into a deficit. Its a very, very important part of the silver equation today, and we are really trying to come to terms with better numbers. Long answer to a simple question, but there you have it.

Thank you. Good.

There appears to be no further questions at this time. I will turn the floor -- I'm sorry, we do have a question coming from John Rosenbaum (ph), a private investor.

What the influence, what will the influence on the Company if Peru or Mexico, the government changes or if they decide to change the policy in terms of miners, what impact will that have on the cost basis?

I think I know what you're saying. You know it's hard to be really hard to guess at what might happen in the future. Clearly Peru in particular has had some volatility. We've been there now for nine years. There have been four or five different presidents in the period of time that we have been there. Some real political volatility, and yet our net cost of doing business has not really changed over nine years. Happily, luckily for everyone there is a very, very big Peruvian mining industry. A lot of Peruvian companies, a lot of foreign companies, it is the biggest part of the Peruvian national economy certainly the biggest export business, so it generates a lot of wealth for Peru and they are somewhat sensitive to tweaking what has worked very well for them. There is a bill in Congress right now in Peru to levy a royalty on mining companies. It is very much up to debate. There's all sorts of different forms of that royalty bill, from a very simple royalty to actually no royalties, some that would actually simply be offset against the income taxes. And where that settles is still up in the air. It will probably be decided later on this year; there may be no change or there may be a significant change. If it is a significant change it will be negative, if there's no change it will be no change. And so it's hard to say where that's going to go, they may offset it against improvements elsewhere in the system to make the net effect neutral to mining companies.

So that's a very important market for us because we have four good size silver operations there and a good number of our workforce live and work in Peru so it is something we're watching very closely. Mexico, we do not see any real change on the horizon that would negatively affect the mining industry or our industry there at all. Never say never. Sometimes changes happen, sometimes they're good, sometimes they're bad. We have been trying to build a diversified company in location particularly, not in commodity but in location in order to ameliorate some of the possible negative changes that sometimes happen in certain countries. We're active in Argentina, in Bolivia, in Peru and in Mexico. And that is one of the ways that we tried to reduce the risk of any significant negative change happen in a particular country.

I have one other question, if I could.

Sure.

What costs will be incurred with the purchase of future mines or the right mine in the --

I am sorry, I missed that. I missed the last part of it.

What will be the future costs for acquiring future mines, future acquisitions? Will that be accretive or dilutive?

We cannot say hypothetically and other than to say that we try not to make dilutive acquisitions in anything. We have very, very closely monitor that, whenever we do an acquisition, whether it is accretive or dilutive and of course we try to get only those which are accretive. So I guess the answer is we would only do it if it was accretive.

Where is the availability of those? Do you have a lot to choose from or are you fairly limited?

That is a far more interesting question to me and the answer is we are really limited. Silver is a very -- and this is something that very few people I think understand. Silver because it is a byproduct metal, most silver in the world is mined from copper mines, gold mines, zinc mines and lead minds. So it is really hard to build our business since silver naturally is rare as a primary product, where over half of the value of the deposit (indiscernible) silver. It's really rare. They occur in underground veins usually, and that means they are very expensive to mine, expensive to develop and most in fact very, very few that could be economic. Within the price constraints that we place on products which (inaudible) at $5 an ounce. That means that it is a very great challenge to grow this company to grow in this -- with the focus that we have. It also means though if you are successful in doing this there is very little competition. There is not more than a handful, maybe even in one hand of projects today that are probably economic in the world at below 5 dollar silver. We monitor them all. We know the companies that have them. We are looking at the results all the time, and we are trying to be the producer that -- the acquirer as opposed to the seller of projects -- the acquirer of good projects ultimately. We acquired Alamo Dorado a year ago, we acquired Moroccan this year; we are always looking at things that are not a lot of things, but when we see something that fits we try to jump on it. Because of course our mission is to be the pre-eminent play, and you have to look at all projects in the industry when you have that mission. Happily, there's not very many of them, in some sense its not so happy, in other words it means it's a very limited market.

Thank you very much. Fine job.

Thank you very much, John. Appreciate your questions.

There appear to be no further questions. I will turn the floor back over to you for any further remarks. I'm sorry, we just had two more questions come into the queue. Would you like to take them?

Absolutely. We are here for our shareholders.

John (indiscernible) of UBS.

Quick question, earlier you mentioned that your all in costs was 550 per ounce. How do higher energy prices impact that? (multiple speakers) Let's say we go from $40 a barrel to $50 a barrel. (multiple speakers)

Hold on. Let's just say we've gone from 30 to 40. I think that is more relevant. Maybe Robert or Geoff, do you want to tackle that?

John, I am going to jump in here. Primarily we are underground miners in Peru. And certainly that is a benefit when it comes to energy crisis as we don't have as much diesel equipment running as one might see if we were primarily open pit miners. So that is kind of the happy story in terms of mitigating future energy price rises. Having said that, I think Ross referred to earlier the cost of shipping our concentrate. There is a couple things going on there. One is clearly energy prices are influencing how much essentially per ton its costing us to put material on a boat and move it around the world. There is also some scarcity in terms of the shipping fleet at this time.

There are other smaller impacts throughout our business depending on how electrical power is generated via oil or via Hydro. Long story, we are not overly exposed to energy prices. There would be some small impact if we continue to see higher oil prices but it's not going to be overwhelming in terms of our cost side.

Just in the industry, John, the real heavy effect of higher oil prices is (inaudible) huge fleets of these big diesel trucks and for example smelters that rely on electricity generators for oil. Those are the ones that are getting completely clobbered right now.

(OPERATOR INSTRUCTIONS) (indiscernible) a private investor.

Thanks for taking my call. I have a quick question regarding silver applications in the super conductivity -- (multiple speakers) major news from Sumitomo and (multiple speakers)super capacitor. Would you please elaborate a little to give us some comfort today to shareholders regarding future demand?

I don't know if I am going to be able to give you comfort or not but here's what I know about this. And don't forget our expertise is more on the supply-side on mines and exploration projects and so forth, not on the demand side and specifically certain technologies. But what we know is this. American superconductors has developed a superconducting wire which is currently power in Detroit's inner city and (indiscernible) shipped quite a bit of this to China. This cable uses silver as a sheeting around it to support the transmission of super low temperatures close to zero calvin (ph). They're using a lot of silver. Something like 50,000 ounces a mile, I think and that may be the (indiscernible) but it is a very, very large amount of silver. And that technology is very much in, its actually in commercial use now, its beyond just R&D but it's sort of in that R&D sphere. There is a lot of research going on in superconductivity because it is a really promising form of using existing conduits in cities to transmit 100 times more power through them if they are using superconductors rather than conventional cables. That is almost where my knowledge ends. I did see the announcement about Sumitomo's super conducting cable as being a big announcement they made, but what I don't know I think it's not what I don't know but its how much silver their particular cable uses. There is varying silver use in different cables I think and I don't know if there's is a high silver or not, so I really can't comment on that. The potential of the world market for superconductors in the study that was done by the silver institute a year or so ago has the total market of around I think 50 million (indiscernible) world record, but 50 million ounces of silver could be used worldwide if this technology really got going and became a conventional technology for transmission of power in these applications.

Peter Strubby of Strubby Associates.

Ross, with regard to Morococha mine as I recall if that is the same mine that was originally owned by Cerra de Pasco, it was a fairly substantial producer also of base metals, copper included. And while maybe the property that you have or the company that was operating it developed silver sources particularly, do you expect that mine to be a substantial producer of other metals besides silver?

Your memory is very good, but the name recognition is there but the actual specifics are a little different today in detail. The Morococha name refers to a big district that was owned by Cerro de Pasco Corporation and mined for zinc, silver, lead and copper. Today, because Cerro de Pasco was taken over by the Peruvian national government about 30 or so years ago, and nationalized they split the Morococha district into two difference operations. One was a silver, lead, zinc operation, and the other which is called Morococha. And the other was a copper operation called Toromocha (ph). Toromocha is in the center of the district and it is surrounded on all sides by veins of silver, lead and zinc. About half of the veins of silver and zinc were owned by the government and the other half were owned or are owned by private companies. Or maybe it's a third, two thirds, maybe that's a better breakdown.

The third that was owned by the government has been mined in a specific operation there. We will be acquiring that, and the private owned silver district of Morococha was controlled mostly by a Peruvian family named (indiscernible) through a company which ultimately became a public company called Sociedad Minera Corona. So Corona ended up with a lot of its own mining going on in its own vein and then they actually did a deal with the government mining company to acquire the government silver district as part of that whole Morococha district. So our acquisition will be both of those assets when we complete it but it will not be of the central copper asset which is held in a separate vehicle by the Peruvian company and it's actually been auctioned to another company which is doing exploration right now. So we don't get the copper. We do get the silver and with the silver comes quite high levels of lead and zinc as a byproduct. What is our zinc byproduct percent going to be from Morococha, Steve?

I do not have that number off hand, but the grade was around three percent zinc (multiple speakers).

It's going to start around 10,000, 12,000 metric tons a year of zinc.

Thanks.

There are no further question at this time. I will turn it back over to you.

Okay, thank you very much, operator. I appreciate the opportunity to give our shareholders and interested parties an update of our Q1 results and look forward to answering any questions people may have after the call if they like to call us here in Vancouver. Thank you, and have a good day.

Thank you; this does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.