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Operator
Welcome to the Pan American Silver Corp. 2004 year-end results conference call. At this time all lines have been placed on a listen-only mode, and the floor will be open for questions following today's presentation. It is now my pleasure to turn the floor over to Ross Beaty. The floor is yours.
Ross Beaty - Chairman
Thank you, operator. Good day, ladies and gentlemen. I apologize; it is kind of a dreadful day for a conference call, Friday morning. But we in management are feeling a little tired; we had a very long day yesterday, and we had a Board meeting in Seattle that required a fairly long drive to and from. But here we are.
So welcome to the fourth-quarter and year-end results conference call. Of course I am not going to repeat here everything that was in our fourth-quarter news release. It's pretty comprehensive. Instead of doing that I am going to try to fill in some of the cracks, and put some of the numbers in context, and pre-answer some question you might have.
My bottom line about our fourth-quarter results is that they were reasonable, but they could have been better. For the year's results the bottom line here is that it was our best year ever; and yet there's a lot of room to make these results even better in 2005.
We established a lot of good records in 2004. Silver production up 30% to 11.2 million ounces. Operating earnings up over 500% to $12.9 million. Net earnings of 19.9 million compared to a $6 million loss in 2003. And consolidated revenues of 92.9 million, more than double that of 2003. By any measure we have to be happy with those results.
Our balance sheet also improved profoundly during the year. Some of the improvements were due to financing activities. For example we raised 55 million in new equity in April, and we have successfully converted nearly all our outstanding debentures issued in 2003. We also repaid all our corporate debt. The improvements were also driven from our mining operations. We generated cash from all our six silver operations, and I think that is the best news of all.
Our financial condition has never been stronger. We ended the year with nearly $100 million in cash, and no debt, and $115 million in working capital. We sleep well at night these days, in profound contrast to just a couple of years ago when things were tight and markets were tough. I believe Pan American today has the best balance sheet in the entire silver mining industry.
A number of items contributed to our fourth quarter not being as good as our third quarter. We accrued 2.7 million in Peruvian income taxes in the quarter, $1 million in Peru employee profit-sharing, and 0.6 million for a new Peruvian royalty. As well -- and by the way, a lot of those numbers are not -- they are not really reflective of the quarter's numbers; they are reflective of the full-year numbers. We just took the hit in the fourth quarter.
As well costs at our La Colorada operation in Mexico remained higher than normal, as we changed our margin plan there to a narrower vein style, requiring higher than normal underground development costs. At our new operation in Peru, at Morococha, we expensed onetime costs to reduce the workforce by about 200 workers and suffered a short-term breakdown in the crusher. Neither of those costs should recur. In 2005 we expect lower cost at both operations.
I'll quickly run through each operation's current status. Starting in Mexico, we did have not have a lot of fun in 2004 at La Colorada. It was our one problem operation, but we showed great improvement as the year progressed. The operation is now producing at its designed capacity, and we certainly expect 2005 to be a better year.
Some of the challenges at La Colorada were management driven. We solved those by replacing the mine manager and other senior mine staff in April, and since then we have had virtually no turnover, no accidents, and have dramatically improved operations. I want to give particular credit to David Dripps (ph), the mine manager at La Colorada right now.
Some of the challenges have been natural, very heavy water inflows and poor ground conditions to name two. These water flows caused us to suspend sulphide mining indefinitely last year; and the ground conditions caused us to change our mining method from wide vein mining to narrow vein, more selective mining, requiring a lot of unplanned tunneling that we are expensing. We are studying matter, the water situation, now; and we hope we can start sulphide mining in the second half of 2005. Obviously if we get the sulphide mine going again we will mine more ounces at much lower per ounce cost.
Moving to Peru, we are really very pleased with our four silver operations there and especially with our fantastic team of 3,800 or so Peruvians who work in our operations there. Our Quiruvilca mine has been a great performer, after nearly killing us during the bear market, when low metal prices made operations at that mine uneconomic. The mine is performing extremely well now and has a great future, especially at current prices. Again I want to give particularly compliments to our mine manager, Jesus Cardenas, for his tremendous achievements at Quiruvilca.
Our Huaron mine and our pyrite stockpile operation in Peru performed well in 2004, about the same as in 2003; and we expect roughly similar performances from each of those operations in 2005.
For me personally our most exciting story in 2004 was at our newest operation, Morococha, which we took over effective July 1st. Even though we experienced some temporary disruptions to production in Q4, we are optimistic this mine will be our best operation in a year or two. I can already report that after only 4 months of exploration activities at Morococha we have nearly doubled the mine's proven and probable reserves, even after accounting for production. Morococha's exploration environment is simply outstanding, and I look forward to many years of profitable mining there and probable mine expansions in the next several years.
Finally we remain active at our San Vincente operation in Bolivia, where we plan to produce about 700,000 ounces in 2005 at a cash cost of $2.23 per ounce.
Now to our growth pipeline. I'm very pleased with our announcement today that we have made a construction decision at our Alamo Dorado project in Mexico. This is a happy event for any company. But I will say the projected financial results are not as good as we had expected when we acquired the project in early 2003 from Corner Bay Silver. Unfortunately we drilled a number of deeper holes there in 2003 and 2004 that required a recalculation of silver and gold resources and a new geological model. We ended up with about the same amount of recoverable silver, but we lost about 115,000 ounces of gold resources.
The other major thing we did, which is a much more positive, was to reengineer the proposed processing method from a heap-leach operation, as had been contemplated by Corner Bay, to a mill operation. This has several impacts. Higher capital costs, but offset by much higher silver and gold recoveries, a much profile more steady profile or smooth profile of silver production over the mines' 8-year life, fewer tonnes mined, so not nearly as much impact, but nearly as much silver produced, and -- more importantly -- better profitability.
Also a very innovative tailings process developed by our project engineering team means that closure reclamation costs will be much lower. Our original budget a year ago estimated CapEx at about $65 million for a mill. The final feasibility result that we announced today of 76.6 million reflects current costs and takes into account the serious cost creep over the last 12 months.
We don't expect this is going to continue for us. We think our number is a very safe capital estimate. We have already secured our truck fleet, shovel, lab (ph), and a few other of the most important capital items. So we think that we've got a pretty good number now that we should be at least able to meet, if not develop the mine under budget. So away we go with our second Mexican mine development. Under the construction leadership of Joe Phillips (ph) and Steve Busby I look forward to a busy 18 months ahead and a successful commission at Alamo Dorado in late 2006.
Our budget estimate for 2005 is for us to produce about 13.6 million ounces of silver at a cash cost of $4.22 cents per ounce. I should emphasize that this cash cost assumes byproduct prices of only $0.45 per pound zinc, $0.38 per pound lead, and $375 per ounce gold. So we would produce at much lower cash cost should today's metal price prevail throughout the year. I would particularly point out our second most important metal is zinc, and in contrast to our budget price at $0.45 per pound that we base our projected cash costs on, we are at today's zinc price of $0.62 or $0.63 a pound.
By late 2006, with Alamo Dorado producing at a 5 million ounce per year rate, and with our planned higher production levels from Morococha, La Colorada, and San Vincente, we should be producing at an annual rate of over 21 million ounces per year, thus cementing our position as North America's foremost silver producer.
So those brief comments will, I hope, put in perspective our financial and operating results announced today. As many of our shareholders know, Pan American turned 10 years old in 2004 as a silver company. With the best financial and operating results in our history, it was a good way to celebrate the decade of growth from a mere idea to the largest, purest, most liquid silver investment readily available to North American equity investors.
As for the future we plan to continue with what has worked so well in the past decade. First and foremost a constant focus on improving our leverage to silver prices, to maintain our position as the best silver investment in the world. Number two, a focus on stronger growth in silver production, continuing to push for higher and more profitable production. Number three, lower cost production; again the emphasis there is to improve our profitability.
Number four, increasing our silver reserves and resources; and we will do this through discovery, both around our mines and in more regional or grassroots programs and, furthermore, through acquisitions. Fifthly, maintaining our policy of no hedging of our silver; we do hedge our base metals, and we do that in (technical difficulty) to increase our leverage just to silver prices. Number six, retaining our strong balance sheet.
And number 7 -- and this is something that is often overlooked, I think, when you look at a balance sheet or a report of earnings -- maintaining our great reputation that we're very, very proud of for honest, fair, and professional management in all areas.
I'm incredibly proud of our achievements to date culminating in all the records we achieved in 2004. But I know we can improve our performance even more. I'd really look forward to reporting to you on how we achieved this in 2005 and beyond.
As for silver prices, what can I say? Strong macroeconomic factors and strong fundamentals of supply and demand carried prices in 2004 to 15-year highs. I expect silver prices to be strong for a long time. I can go into endless detail here. I sometimes have been accused of talking for far too long about silver. But instead of doing that, I think I'm going to do stop with all this preamble and open the call to questions.
I forgot to introduce people around the table here with me in Vancouver at our office headquarters. With me is Geoff Burns, the President and CEO of Pan American. Steve Busby, our Senior Vice President of Projects. Steve is going to be looking after Alamo Dorado and can answer any questions you have on that project, or for that matter our other development projects like Manantial Espejo, which is also proceeding well right now in Argentina. Andy Pooler, our Senior VP of Operations, who can respond to any questions on our operations. Brenda Radies, our VP of Corporate Development. And last but not least, Rob Doyle our CFO, who is responsible for all the numbers.
With that, operator, I would like to open the call to questions. Thank you very much.
Operator
(OPERATOR INSTRUCTIONS) Adrian Day with Adrian Day Asset Management.
Adrian Day - Analyst
I had a question on Quiruvilca if I may. I am wondering, to what extent is the turnaround over the last couple of years due to the increase in zinc prices? And then a subsidiary question is, is the mine at this stage vulnerable to a decline in zinc prices?
Ross Beaty - Chairman
I can answer that one (indiscernible). The improvement at Quiruvilca has virtually nothing to do with zinc prices. Virtually nothing to do. It may sound surprising, but we had this turnaround, that really was starting from the late -- the second half of 2003 and certainly it just accelerated through the first half of '04. It resulted from a lot of operational changes that we made in response to the bear market, where the mine just about did us in with operating losses.
When zinc went to $0.33 a pound and silver to $4 an ounce, we just simply couldn't run Quiruvilca profitably. It is a very narrow vein mine, and we had to do some surgery there. One of the things was to close the North half of the mine, which in fact was the more zinc-rich part of the mine; reduce our workforce significantly; make a lot of just surgical cuts at the mine and improvements to profitability.
It was really the silver price rise, plus those management changes at the mine that caused the financial turnaround more than anything. We actually don't get -- we get some benefit from the higher zinc prices; but we have also hedged our zinc production to some degree, which takes away that. We certainly aren't getting the -- we are getting partly the benefit of today's zinc prices, Adrian, but not nearly as much as we would get if we were totally unhedged on the zinc side. Furthermore even if we were unhedged -- even if we were hedged totally, I think the impact of zinc prices at Quiruvilca is minor rather than major. If zinc does decline again, we don't expect to change the profitability of Quiruvilca at cure all.
The last thing was we got into some higher grade areas. So our grades went up about 30% on the silver side, maybe 10% on the zinc side; and that also of course goes straight to the bottom line.
Adrian Day - Analyst
I appreciate that. What price are you hedged?
Ross Beaty - Chairman
We have a whole bunch of hedges. We started hedging when zinc went over $900 I think, and we -- what, Rob, what is the average hedge?
Rob Doyle - CFO
Average hedge for 2005 is just below 1,100; it's 1,091.
Ross Beaty - Chairman
Much do we have hedged?
Rob Doyle - CFO
About 22,000 tons (ph); roughly 45% over the next 16 months' worth of production.
Adrian Day - Analyst
Great. Thank you so much.
Ross Beaty - Chairman
Are we hedged beyond 16 months?
Rob Doyle - CFO
No.
Ross Beaty - Chairman
So we have zero hedges beyond 16 months; 45% of the hedges over the next -- over the production of the next 16 months, and that is it.
Adrian Day - Analyst
Thank you.
Operator
Haytham Hodaly with Salman Partners.
Haytham Hodaly - Analyst
Quick question for you. I guess with regards to you gave in the outlook section a forecast of 15 million in operating cash flow before working capital changes for 2005. What silver price are you using there, Ross?
Geoff Burns - President and CEO
Haytham, it's Geoff. We are using a $6 silver price for that estimate.
Haytham Hodaly - Analyst
That being said, would that indicate that you're still expecting cash costs to stay above $4 per ounce produced? Is that correct?
Geoff Burns - President and CEO
Based on the prices that Ross went through in his discussion earlier, the 440 is where we're roughly going to be. Higher prices on the byproducts will obviously bring that down.
Haytham Hodaly - Analyst
Perfect. Thank you.
Operator
(OPERATOR INSTRUCTIONS) Terence Ortslan, TSO & Associates.
Terence Ortslan - Analyst
A couple of things. Actually, just a small item, Ross, is that you mentioned the costs you are going to be --.
Ross Beaty - Chairman
Sorry; can you speak up, please?
Terence Ortslan - Analyst
Ross, you mentioned the costs is -- you are going to be 422 in your presentation; and the handout, it is 411. Just small, picky stuff. But is there a reason for that?
Ross Beaty - Chairman
I'm sorry, Rob. Sorry, no; that that was my mistake. I was using a different briefing sheet when I put that number (multiple speakers).
Terence Ortslan - Analyst
411 is not right?
Ross Beaty - Chairman
Yes. Sorry about that.
Terence Ortslan - Analyst
No problem. Second thing is, how much of your TCs (ph), RC, the refine charges, have you fixed this year for the zinc? How much you got? How much more benefit are you going to see in those? Because the charges are coming down, as you know.
Rob Doyle - CFO
Yes, that is right. The zinc contract market is certainly very favorable for producers at the moment. We do have fairly significant commitments to smelters and traders. So we have got our TCs locked in for the next couple of years anyway. However at Quiruvilca there is some free concentrate that will be available in 2006.
Terence Ortslan - Analyst
In average the delta between year-over-year, how much of a benefit are you going to see in that in 2005 versus '04?
Ross Beaty - Chairman
In terms of TCs, you mean?
Terence Ortslan - Analyst
Ortslan: Yes.
Rob Doyle - CFO
We expect TCs to be very similar in 2005 as they were in 2004.
Terence Ortslan - Analyst
Okay, so you are not going to see the benefits right away?
Ross Beaty - Chairman
No; we have marketed our concentrates under medium-term contracts and not -- we don't really get the benefit of spot treatment charges, which is really what you're talking about.
Terence Ortslan - Analyst
Actually it is 1-year contracts (ph) are coming down, that by about 15 bucks, 20 bucks a ton. That is what I was trying to refer to.
Rob Doyle - CFO
That is true. However, we have got multi-multi-year commitments. So we unfortunately don't benefit in that at the moment.
Terence Ortslan - Analyst
You are not going to add to your hedges on zinc, though, right? You will just let it run down?
Ross Beaty - Chairman
That is something which we are debating right now, quite frankly. At the Board level we had a quite a discussion yesterday on that. There are arguments for continuing to hedge as the metal price rises; and there are arguments to let our existing hedges lapse.
We don't have long-term hedges. None of this is long-term. Of course again we are doing it to try to smooth out our base metal production so that we can really deliver to our shareholders true levers just to silver.
We don't have our revenues and production profitabilities swing based on base metal prices. That is what we want to try to avoid. And that is the reason we are doing this. So it's under some debate right now, and we're not actually settled on exactly what we are going to do.
Terence Ortslan - Analyst
You can always hire TSO & Associates, they will tell you what to do. Geoff, on the D&A for 2005, please, and also give a some guidance about your taxes. You've got a pretty low tax rate going, given your (inaudible). Just guidance on that.
And maybe. Ross, I know you want to talk about silver, so I'll let you talk about silver. Because you said some references were made by Russian and Chinese central banks yesterday (indiscernible). But I think the numbers are very small. Maybe you want to address that later on. Thanks.
Ross Beaty - Chairman
Very good, Terry. Go ahead, Rob.
Rob Doyle - CFO
D&A charges for 2005 are forecasted around about $1.15 per ounce of silver, so it takes us up to a total cash cost of around 526 on top of a cash cost of 411. Most of that of course is depreciation. That does also actually include a part of the reclamation provision that is required under the recent accounting pronouncements. I'm sorry I didn't (multiple speakers) question on the tax side.
Ross Beaty - Chairman
He wanted to know how our forecast tax bill is going to be in 2005 relative to its fairly low level in 2004.
Rob Doyle - CFO
Two of the four operations that we have in Peru became taxable in the latter part of 2004. So we would expect a tax bill of -- it's probably going to be in about a $4 million range is what our forecasts are. Of course it depends on metal prices and also depending on our tax treatment of various expenditures. But that would be our forecast, roughly in that range.
Terence Ortslan - Analyst
For the total operations, or just Peru?
Rob Doyle - CFO
Well, Peru is the only jurisdiction in which we are taxable.
Terence Ortslan - Analyst
Got you.
Ross Beaty - Chairman
Terry, in regards to silver prices with respect to stockpiles, government stockpiles, Russia was stated by Goldfields Mineral Service as being a contributor to silver sales in '04. But we don't expect there to be any significant follow-up on that. We think that was a one-off, relatively small amount.
As for China which has been the biggest contributor of silver to fill the silver deficit between demand and supply, traditional supply and demand, China has been adding about 60 million ounces per year of silver into the world market from it's own stockpile at the People's Bank in China. We think those sales were dramatically lower in 2004 to perhaps 30 or 40 million ounces.
The signal there is probably that they are either depleted or very much reduced to almost nothing. That would be our best guess. There might be something less than 100 million ounces left. Whether that is for sale or not we don't know. But we do think the era of China selling very large quantities of its own stockpiled silver onto world markets is over.
Terence Ortslan - Analyst
Can you -- if you are going to see a surprise in 2005, Ross, where are we going to see the surprise in silver, do you think?
Ross Beaty - Chairman
In silver? The biggest surprise that I think will happen in 2005 will be, to the extent that there is a silver ETF introduced to the market; and if there is -- and there is some discussion about it coming on midyear or sometime in 2005 -- I think that could have a very significant impact on the silver price. Because it will add to it onetime; there will be a large onetime demand.
And the silver market, as you know, it's a very thin market, it's very volatile. There is not a lot of silver stockpiled anymore. They can see that. There just isn't much silver available. So I see that as having a potentially significant impact, possibly the most significant impact of '05. We will just see if that happens.
There's a bunch of other impacts that are of a smaller nature, but that's the one I would single out as the most potentially explosive impact from the standpoint of the price. Is your other question (multiple speakers)?
Terence Ortslan - Analyst
No, that's it. Thanks a lot, guys.
Operator
David Mallalieu with BMO Nesbitt Burns.
David Mallalieu - Analyst
Ross, (indiscernible) questions for you with regards to Manantial Espejo. Could you give us a flair of what your plan is for the -- if you've got one right now -- for what the prefeasibility could look like?
Ross Beaty - Chairman
Sure, absolutely. We are very, very active in Manantial Espejo. I can get Steve to fill in any holes that I create in what I say. But it's a very active project. Obviously we have been running Alamo Dorado feasibility and Manantial feasibility more or less in parallel for the last year or so.
Manantial is beyond prefeasibility really, David. It is kind of heading towards a feasibility; but it's just in the period right now where we are finishing off the drilling, we are getting the reserve model put together, and in the meantime we are developing the flowsheet for the mill, and very much the ideas on an optimal size.
We're doing a lot of work at Manantial on scheduling between open pit mining and underground mining; it would be a mixed mine. It's a vein mine, a vein system. Some are close to the surface, which are open pit mineable. Some are deep, which are underground mineable. It's a lovely project in a very favorable area in some senses. It's a lovely project in not such a favorable area in other senses; in the sense of it being remote from infrastructure. So we will have quite a high infrastructure cost in terms of power particularly and accommodation and so forth.
But the status of -- Alamo Dorado kind of came first. It was more advanced than Manantial Espejo. We are still drilling off reserves. We're still adding to reserves resources at Manantial. So Alamo Dorado had that finished last year. As I mentioned, we had to remodel Alamo Dorado; that was completed. We then went right into a feasibility study which is now finished. And obviously current conditions allow us to proceed with a production decision; and that is what we did yesterday.
So it's to the front now. We're staffing up Alamo Dorado. It's a big, big job of course for any company getting a new project going. But we have already secured a lot of the capital equipment that we need to build Alamo Dorado. That is moving very aggressively from today on. It will now switch very much into project mode. We're fully funded to build it, while at the same time we finish off with our Manantial Espejo evaluation.
We have some discussions on infrastructure and on tax rates, royalties, and so forth with the Argentine government that are needed; and those are yet to come. We have a plan in the next couple of months to meet with them and go over those issues. But we also want to deliver to them a product that will be something that we can really look at as a feasibility stage, or close to feasibility project. We would like to have that finished by the end of the second quarter. That is our schedule for Manantial Espejo.
We won't be looking at construction of any kind of a large mine at Manantial Espejo this year. We would be doing that next year. But it doesn't mean we cannot proceed towards that stage through, for example, kicking off underground development at Manantial Espejo later on this year. I hope that answers your question, David.
David Mallalieu - Analyst
(indiscernible) a lot. Can you comment on what component would be -- I mean from a percentage of reserves basis -- what component would be underground versus open pit?
Ross Beaty - Chairman
Steve?
Steve Busby - SVP Project Devlopment
Right now it's going to be dependent on our final operating cost estimates in the feasibility study. The selection of where we cut off the open pit to underground is really sensitive to that. Right now we're estimating that it could be as much as half and half. Half underground and half open pit.
David Mallalieu - Analyst
For the Alamo Dorado, is it possible to post a consolidated schedule up on the Web, so we can take a look at that?
Brenda Radies - VP IR
We can.
Ross Beaty - Chairman
Absolutely, David, we will do that.
Brenda Radies - VP IR
Construction schedule, sure; I can add that in.
Ross Beaty - Chairman
Absolutely.
David Mallalieu - Analyst
Thanks a lot.
Ross Beaty - Chairman
Of course, the next thing is once we do it we are (technical difficulty) that will kick us even more to get (indiscernible) done ahead of schedule. So that will do that. It's a very good idea. Puts more pressure on the engineers.
Steve Busby - SVP Project Devlopment
We are ready.
Operator
(OPERATOR INSTRUCTIONS) Mike Curran, with CIBC.
Mike Curran - Analyst
At La Colorada obviously the water issues and whatnot are keeping the sulphide line from operating. Can you give me a sense what the -- if it turns out on your review that you're not going to restart the sulphide, what kind of mine life we're looking at, at La Colorada?
Geoff Burns - President and CEO
It's Geoff. I think based on our current reserve profile on the oxide, we're still looking at 8-year life on the oxide side.
Mike Curran - Analyst
Okay, so when I look at the reserves, those are all oxide?
Geoff Burns - President and CEO
There is a small amount of sulphide in there; but the maturity are the oxide, yes.
Mike Curran - Analyst
Okay, great. Thanks a lot.
Geoff Burns - President and CEO
And I will say that this year we have a fairly aggressive drilling program scheduled for La Colorada. We didn't do almost -- or did almost no drilling last year. We were really focusing on getting the mine going and getting it turned around and optimizing it or getting to capacity.
This year we are going to turn the drills lose again? We think there is some reasonable potential, particularly on the oxides, to extend them even further at depth. So we look through the year and see if we can do something with that mine life, and tell you about it later on this year.
Mike Curran - Analyst
Great, thanks.
Operator
David Mallalieu.
David Mallalieu - Analyst
In your January presentation package, it provides some information on Morococha with regards to the capital going forward. That was for 2005. Can you take an estimate what you are going to be looking at for 2006, 2007? Of course that is probably going to have something to do with how aggressive you are on changing plants, exploration development, the whole thing.
Geoff Burns - President and CEO
I think the biggest questions going forward are going to be what we find with our exploration program. At the moment we actually have seven drills active on Morococha; about half underground and about half on surface. We're getting some very, very good results, both within the areas that we're currently working in right now, in terms of expanding reserves and resources, and in some areas that are a little outside of where we have been mining before.
So I think it's a little -- it's far too premature for us to estimate what we're going to spend in capital really in 2006. It's going to depend on where we start to focus our mining and our mining efforts and what our long-term plans are going to be there with respect to our discovery.
So this year we've got quite an aggressive capital plan, a lot of it in the mill, a lot of it in development. And very comfortable that with that we will achieve the numbers we've given you as forecast this morning. We think we are going to have some very positive news going forward. Once we have that developed we will put the next level of capital to it.
Ross Beaty - Chairman
One of the cool things at Morococha, David, is that we actually have two mills there. We have one that is operating right now that provides the 40,000 tonnes a month or so of the mill feed at the grades you have seen in our quarter. But there is also another mill that is idle right now and has the ability to be cranked up at a rate of about 30, 35,000 tonnes a month.
To the extent -- I mean one of the things we are thinking about is if we do continue to have the results we have been getting here recently, that is available as a potential, very low capital way for us to really crank our production up there in a significant way. So that is kind of my little fantasy going forward. At this point there's nothing that we can say we are going to do for sure. But it's my hope within a year or so to be able to say (ph) we planning to do.
David Mallalieu - Analyst
Two follow-up questions on that, then. It also stated in the presentation package there is a consideration for a bulk mineable target at Morococha. I was wondering if you could elaborate on that. Whether just literally elaborate on that.
And the second one is with regards to the minority shareholders of the subsidiary or the wholly-owned company effectively. What is the plan with regards to that?
Ross Beaty - Chairman
We can answer both of those. Andy Pooler is going to answer the bulk mineable side of one of the areas which we discovered. I will tackle the other one.
Andy Pooler - SVP Mining Operations
Thanks for the question. As Geoff said, we currently have seven drills drilling very aggressively. One of the targets is an area we all the Codeciada (ph) target area. Within that we have an area called the Italia (ph) vein system which is comprised of large mantos, limestone replacement features, that have the potential to yield large volumes of zinc that we can exploit in a bulk mineable situation.
Ross Beaty - Chairman
This particular area is more base rich than silver rich. There is a silver component to it, but it is more (multiple speakers).
Andy Pooler - SVP Mining Operations
Right now, in the interim period, we're taking a few steps to decrease the number of stopes and increase the size of stopes in a step towards that direction. But we have the potential, if it works out according to geological interpretation, to address it in a lot more aggressive, bulk mineable features. Sublevel stopes (indiscernible) something of that nature.
Ross Beaty - Chairman
Thanks, Andy. The question on the minority side, the main shareholder of Morococha operating subsidiaries is not Pan American; it is a Peruvian mining family. At the moment, they have indicated they want to stay the shareholder, and they're going to be there as -- they are going to be funding their proportionate share of capital; and they will receive their proportionate share of dividends. That is representative of about 12% of the company.
David Mallalieu - Analyst
Sorry, it's an ignorant question; but are dividends actually coming out at this point?
Ross Beaty - Chairman
This company has produced dividends for quite a long time. However we are obviously going to -- because we have such an aggressive program to modernize the mine, to explore it, to really see what it's broader potential is long term, we are obviously deploying all of the profits that come out of the operation right now back into the capital program that we're running there.
David Mallalieu - Analyst
One more question?
Ross Beaty - Chairman
Go ahead.
David Mallalieu - Analyst
All right, then I'll bail out. You were mentioning with -- or to the bulk mineable target, it's kind of a Catch-22 then, isn't it? If you are successful, then you've got to consider the next plan, which is what to do with perhaps the idled mill; or turn the mills around completely and just make them bigger. So, I mean it's an open book, isn't it?
Ross Beaty - Chairman
It is the very happiest possible problem to have for any miner.
Andy Pooler - SVP Mining Operations
The property is just so large with so many targets. It is difficult to explain it.
Ross Beaty - Chairman
We're doing a big program (indiscernible). We are drilling about 40,000 meters there this year, David. At the end of this exercise we are going to be able to plan properly, long-term plan, for where we're going to go there. But it's a very, very happy problem to have on this end (ph).
David Mallalieu - Analyst
Thank you very much.
Operator
Gentlemen, at this time there appear to be no further questions.
Ross Beaty - Chairman
Thank you very much to all of those who are on the line. We are, as you see, we're a very happy Company right now. We feel we can improve on results. But nevertheless they've never been better in our history. So away we go.
We are also very excited out taking Alamo Dorado forward and making a lump of a hill that grows trees on it and turn it into the beautiful product that we mine that is used in so many beautiful uses. Thank you very much.
Operator
This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.