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Operator
(Operator Instructions).
As a reminder, today's conference call is being recorded, May 13, 2009.
Before I begin today's presentation, I'd like to turn the conference over to the President and Chief Executive Officer, Geoff Burns.
Please go ahead, sir.
- President and CEO
Thank you, Operator.
Good morning, ladies and gentlemen, and welcome to Pan American's first quarter earnings release conference call.
Joining me today here in Vancouver are Steve Busby, our Chief Operating Officer, Michael Steinmann, our Executive Vice President of Exploration, Rob Doyle, our Chief Financial Officer, and Kettina Cordero, our Coordinator of Investor Relations.
I'm going to get started by making some brief comments about our achievements during the first quarter this year, and some observations about the current environment and what changes we're seeing in our business since last we spoke.
During our last conference call, I described a number of cost reduction and cost control initiatives that we introduced late last year to combat what was a precipitous fall in both base metal prices and the price of our primary product, silver.
At the same time, I told you that I was very optimistic about the prospects for a rebound in the price of silver going forward.
While I'm pleased to be able to report today that based on our first quarter results, which we released last evening, that I can conclude that our initiatives have been successful in driving our cost of production down, and indeed the price of silver has continued to rebound from the lows it touched in late November last year.
Today's silver is trading just below $14 per ounce, which is more than 50% higher than the $9.17 per ounce low it touched on November 21, of 2008.
And up almost 29% since the start of this year.
These two factors, combined with the startup of our Manantial Espejo silver and gold mine in Argentina, allowed us to again move back into the black.
Here are our headline performance metrics.
In the first quarter, we produced 4.9 million ounces of silver, and a Company record 21,000 ounces of gold.
Our cash cost declined 28% as compared to the fourth quarter of last year, to $5.94 per ounce, some 5% below even our full year cash forecast.
We generated mine operating income of $10.5 million, an improvement of over $20 million as compared to the last quarter of last year.
Cash flow from operating activities, before changes in working capital, was $19 million or $0.23 per share, an impressive $31 million more than in the fourth quarter of 2008.
And we generated quarterly net income of $6.6 million or $0.08 per share.
While focusing on retooling our operations, particularly in Peru, where base metals are an important byproduct for us, we also completed the construction and inaugurated two major growth projects.
After almost two years in construction, Manantial Espejo reached commercial production on January 1 of this year, and has delivered one of the smoothest startups I have experienced in my plus 25 years in the mining business.
Our major expansion of San Vincente was also completed in the first quarter, and while we're still in commissioning, we've already started to ship both zinc and silver copper concentrates from our Bolivian mine where productions levels are already nearing feasibility estimate.
It was clearly a turn around quarter for Pan American, and I would now like to turn things over to Steve, Rob and Michael, who I know will provide you with some additional detail and commentary on our operations, our development projects, our financial condition and our exploration programs.
Steve?
- COO
Thank you, Jeff.
And good morning, ladies and gentlemen.
It is with pleasure to report our first quarter results today, because I believe they clearly highlight one of Pan American Silver's strengths, it's people.
As previously reported, Pan American Silver's management responded quickly and decisively to the rapid collapse of the metal prices in the fourth quarter of last year by developing meaningful initiatives to reduce costs and improve productivities.
In February, I reported that we were just starting to see the benefits of these initiatives.
Today I'm pleased to report the successful results in our first quarter 2009 operating performance.
Before I share the specific production and cost details of each of our mines, I would like to provide additional details that further highlight the successes from these initiatives.
Our overall unit operating costs per ton at our Mexican and Peruvian mines has reduced 20%.
From $55.20 per ton in the fourth quarter of 2008, to $44.28 a ton in the first quarter of 2009.
The majority, or 87%, of these cost savings are due to employment reductions, reduced prices of consumables, lower energy cost, all enhanced by higher tonnages.
Positive currency exchange rate movements contributed the remaining 13% to the overall cost reductions.
Additionally, we have reduced our capital expenditure at our Mexican and Peruvian mines by 66%, from $14.5 million in the fourth quarter of 2008 to $5 million in the fourth quarter of 2009, as we cut back longer term mine developments beyond two years, as well as focusing our developments to eliminate the lower grade marginal areas during these times of reduced base metal prices.
Overall, during the first quarter of 2009, our operations produced 4.88 million ounces of silver at a cash cost of $5.94 per ounce, reflecting a 6% improvement in silver production, and a 28% improvement on cash operating costs compared to the fourth quarter of 2008.
Our first quarter production was led once again by Alamo Dorado's 1.3 million ounces of silver in Mexico, at a cash cost of $4.51 per ounce, which is a significant improvement over the $6.18 per ounce cost in the fourth quarter of 2008.
As reduced operating costs and improved productivities from the management's initiatives were complemented by encountering an unexpectedly high gold grade zone in the upper reaches of our phase two pit layback.
That generated nearly 4,900 ounces of gold production versus our forecast of around 2,400 ounces.
As expected, the solar grades at Alamo Dorado reduced to 105 grams per ton in the first quarter, as we advanced the layback of our phase two pit.
This reduced grade will be more or less consistent during the remainder of the year until we get back into the higher silver grades that exist in the lower reaches of the pit.
Despite complying with the Mexican federal decree issued in early May, calling for a temporary six-day suspension of operations to help combat the influenza outbreak, we expect quarterly silver production rates at Alamo Dorado to maintain around the 1.2 million to 1.4 million ounces for the remainder of this year, given our ability to manage grades and production through our stockpile strategies.
We're expecting cash operating costs to increase to nearly $6 per ounce, as we return to more expected gold production levels after mining through this unexpectedly gold rich zone in the upper reaches of the phase two pit layback.
The La Colorada mine in Mexico produced 801,000 ounces of silver in the first quarter of 2009, as expected, after reducing the mining rates from some of the the lower grade marginal areas of the deposit.
La Colorada produced at a cash cost of $7.36 per ounce in the first quarter, which was 15% better than expectations, due to positive impacts of our management incentives.
The La Colorada mine also complied with the Mexican federal decree, and we incurred a six day temporary operation suspension.
However, we do not have the ability at La Colorada to make up the production that we lose, like we do at Alamo Dorado, since we process directly what we mine at that operation.
Therefore, we're expecting roughly similar silver production rates in the second quarter, while slowly improving those rates during the remainder of the year.
We expect cash costs for the remainder of the year to be similar to the first quarter results, assuming gold prices remain stable.
I'm very pleased to report that our Peruvian operations produced just over 2 million ounces of silver at a cash cost of $8.17 per ounce in the first quarter, reflecting a significant 21% improvement over the $10.33 per ounce cost experienced in the fourth quarter of 2008.
As we had previously reported, our Peruvian operations required the most significant retooling efforts after the collapse of the base metal prices, given the dependence these polly metallic operations have on the byproduct base metal productions.
We made a number of difficult decisions in late 2008, including reducing our Peruvian work force by more than 700 individuals, aggressively pursuing cost savings with all of our primary contractors and suppliers, cutting back on our long-term mine advances for those needed for no more than the next two years.
Minimizing mining of lower grade marginal ores, and announcing our intention to begin preparations to place Quiruvilca operation into Quiruvilca maintenance.
The effort to execute these decisions was intense during the last six months, as the general Peruvian population was not fully prepared to accept the impacts of the rapid global recession.
While we have generally been successful at navigating through these necessary changes, it hasn't come without some disruptions, like the one we announced in early April, where we incurred an eight-day strike at our Morococha operation, as we work through the realities of the metal price impacts with our workers at that operation.
We believe we now have those issues resolved with all of our workers in Peru, and have everyone now focused on executing our operating plans for 2009.
I am pleased to also report that the Quiruvilca mine produced almost 350,000 ounces of silver for a cash cost of $10.12 per ounce, with absolutely zero capital spending, which is a huge improvement over Q4 2008 results.
And it was realized in spite of our announcing the intention to prepare the mine for care and maintenance.
While preparing for care and maintenance, we do expect to be able to continue reduced operations for the next several months, and possibly into early 2009, provided the base metal prices remain at their current levels.
We do expect to see a small impact to our second quarter Peruvian mine silver production, as a result of the eight-day strike at Morococha, but anticipate returning the first quarter production levels for the third and fourth quarters of this year.
I'm particularly pleased to report that our startup at Manantial Espejo in Argentina is proceeding very smoothly.
Producing over 700,000 ounces of silver in the first quarter of 2009, at an outstanding cash cost of $1.12 per ounce.
Benefiting from both a smooth startup and better than expected gold production and prices.
We certainly have our challenges at Manantial, with the remoteness of the site and the severe weather conditions, but we're very pleased to see the excellent ramp up success during the very first quarter of starting the plant operations.
We're advancing a number of projects designed to prepare us for the upcoming winter operations, and ensure we will continue to see outstanding results in the coming quarters.
Fortunately, the mine developments are well ahead, giving the delayed plant startup that we incurred, and this is providing us access to higher grade ores, similar to what we had experienced at the Alamo Dorado startup a couple of years ago.
Overall, the plant processed over 131,000 tons of ore in the first quarter, which is almost 75% of design capacity and 5% ahead of our ramp up targets.
The silver grade for the quarter was 212 grams per ton, right on target, and the gold grade was 3.8 grams per ton, higher than our expected 2.9 gram per ton target.
Silver and gold recoveries are ramping up ahead of our projections, with gold recoveries already exceeding our life of mine targets of 94%, and silver recoveries at 86%, working their way towards our life of mine projections of greater than 90%.
We're working towards getting all of our Manantial Espejo operating groups well trained and fully functional, as we strive to achieve steady state production in the coming months.
At this point, we feel confident we'll be able to achieve our targets for both production and costs for 2009.
We were very pleased to also report the completion of construction and initiation of start up activities at our San Vincente project in Bolivia in late March, within about eight weeks of our target, and within our last capital cost estimate of $71.3 million.
We've produced a limited amount of flotation concentrates in late March, and are now in full start up mode at the operation.
The development of our mechanized mining method on the new high grade [litriol] vein is looking fabulous.
And is already starting to provide some excellent grades to our plant during the start up of operations.
This has indeed been a very eventful quarter for Pan American Silver, with intense focus on cost savings and productivity enhancements, successfully resolving an employee strike at Morococha, complying with the Mexican federal decree to combat the influenza outbreak, all the while successfully inaugurating not just one but two new mines for the corporation.
In closing I would just like to say that I'm very confident in our ability to achieve our 2009 production costs and forecast.
I'll now turn the call over to Rob Doyle for the financial update.
- CFO
Thanks, Steve, and good morning, ladies and gentlemen.
Our financial results in Q1 2009 showed a vastly improved picture from our Q4 2008 results.
Before we get into the details, I would like to review some of the significant events that occurred during the quarter and had a material impact on our results or financial position.
In February, we closed a common share offering for proceeds of $98 million, net of underwriting fees and issue costs.
The proceeds from the offering bolstered our liquidity, and further strengthened our balance sheet.
As Steve has discussed, our Manantial Espejo mine in Argentina enjoyed a very smooth start up, allowing us to declare commercial production on January 1, 2009.
Manantial produced 729,000 ounces of sliver, 13,500 ounces of gold, contributed about $2 million of income to our bottom line and was cash flow positive, all in its first quarter of production.
As you heard from Steve, we also completed the construction of San Vincente during the quarter, which brings to an end the period of heavy capital expenditures, which has seen Pan American investing just over $560 million in its development projects and operations since the beginning of 2005.
With construction of San Vincente behind us, and a liquid debt-free balance sheet, we're financially very well positioned to respond to strategic growth opportunities.
Our financial results in Q1 2009 reflected the positive impact of the cost cutting initiatives taken in the third and fourth quarters of last year.
On a per ton basis, operating costs declined by 13% at the Peruvian operations, and by 54% at the Mexican operations compared to Q4 costs, largely due to our cost initiatives, the benefits of weaker local currencies, and softer markets for energy, consumables and reagents.
We also enjoyed a nice recovery in silver prices, which bounced back by 23% on average, from prices that prevailed in Q4 of 2008.
The net result was that our operating margins in Peru and Mexico increased by almost three fold from the last quarter of 2008.
And then of course, there was the positive impact of Manantial Espejo's contribution to silver and gold production, earnings and cash flow.
As a consequence of all of these factors, we saw much improved operating results in Q1 2009 compared to Q4 2008.
Mine operating earnings were $10.5 million, that's a $20.4 million positive swing from the previous quarter.
Net income was $6.6 million or $0.08 per share compared to a loss of $0.41 per share.
Cash flow from operations before working capital movement was $19 million, a positive swing of $30.6 million from Q4 2008.
When we compare our Q1 2009 results against the comparative period of 2008, the impact of sharply lower silver and base metal prices quickly becomes apparent.
Although we produced and sold more of all of our products, other than lead, much lower metal prices caused a $57.9 million decline in sales, which was the key difference between our results compared to a year ago.
On average, compared to Q1 2008, silver prices declined by 28%, while zinc, lead and copper prices fell between 52% and 60%.
Our statement of operations for Q1 2009 was reasonably straightforward, and did not contain any material atypical charges that we've seen in recent periods.
We did close down the balance of our base metal hedgebook early on in the quarter, by buying back our forward sales position and crystallizing a substantial gain.
We expect to receive another $8.1 million over the balance of 2009, as these contracts settle.
In April, subsequent to the quarter end, we made the decision to catch some of the recovery that we've seen in zinc prices by committing about 20% of the remainder of our 2009 payable production to an options structure, which guarantees us between $12.50 and $16.30 per ton for 5,000 tons.
Moving to the balance sheet, our working capital increased by $104.2 million during the quarter, primarily due to the proceeds from our equity offering in February.
We also increased our inventories and accounts receivable, as a direct result of both Manantial Espejo and San Vincente ramping up operations.
From a cash flow perspective, we invested $18.7 million in property, plant and equipment during the quarter.
$9.9 million of that amount was spent on completing the expansion of San Vincente, while $3.5 million was spent closing out construction payables at Manantial Espejo, and completing refinements to the plant and machinery at the mine.
In addition, we invested $5.3 million on capital projects at our existing operations.
These capital expenditures were funded from cash flow generated by operations before working capital movements of $19 million.
We finished the quarter with a solid working capital position of $199.3 million, that's a current ratio of 3.7 to 1, and cash and short-term investments of $107.3 million.
Overall, an excellent turn around quarter for Pan American, but it was not all plain sailing.
One troubling situation that did not have a material impact on our Q1 results, but may have on our future results, is the financial distress of Durun Peru, the owner of the Loroya lead, copper, zinc smelter in central Peru, and the largest purchaser of our high-value copper silver concentrate that we produce at our Peruvian operations.
Durun Peru ran into financially difficulties in February, when the credit lines were withdrawn by their banks.
That prevented them from purchasing concentrate from us and other mining companies, and effectively forced a substantial closure of the smelter.
Pan American, like many other mining companies in Peru, there are two main impacts.
First, we have delivered approximately $7.5 million worth of concentrate to Durun Peru, for which we have not yet been paid.
The second potential impact is on smelter terms related to future production, should the company have to find alternative markets for our copper silver concentrates in Peru.
There are a limited number of smelters in the world that con process our concentrates, and we could experience material deteriorations in the terms that we're able to negotiate for those concentrates.
The Peruvian government, together with mining companies and concentrate traders, have shown a willingness to find a satisfactory solution to the Durun Peru financial problems, and the company remains optimistic of a full recovery of the amounts owed to it, and that normal operations will resume at the Loroya smelter.
But realistically, it could take another two to three months to revolve.
With those comments, I will hand it over to Michael for an update on our exploration activities.
- EVP Geology and Exploration
Thank you, Rob, and good morning, everybody.
This-- I'll introduce you to our newest development project and hopefully next mine (inaudible) in Mexico.
But first I would like to take a few minutes to talk about our ongoing brown and green field programs, and our operations.
I'm sure you remember from the last conference call, that our exploration efforts remain largely focused on our operations, and on a limited number of select, high potential projects in Mexico and Peru.
Corporate 2009 exploration program contains a total of 53,000 meters of diamond trolling at a cost of approximately $4.8 million.
During Q1, we drilled over 9,500 meters of this program.
Due to the cost savings initiatives, we reduced our programs that went on at Morococha, as we have large reserve base in both of these mines.
We focus our drilling on high grade targets, close to existing infrastructure, like the (inaudible) area in Morococha.
Drilling is still ongoing, and the peripherals of this major rain system, which was discovered in 2008.
Level 575 is already in production, and levels 520 and 375 are currently under development.
No doubt that best exploration results in the first quarter came from La Colorada.
Deep drilling of the sulfide veins returned multi-kilogram of silver and up to 20% combined lead zinc, with intersect that range from one to nine meters wide, and are located up to 130 meters below the current mining levels.
Drilling will continue throughout the year to explore the remaining 600 meters strike land of this major NC2 vein, and parallel structures, which will provide part of the production of the next coming years and extend the mine life of La Colorada.
I'm also excited that we started our exploration program at Manantial Espejo.
As you heard from Steve, the mine is in full production.
We have one underground rig, which is exploring vein expansions, but there was no surface drilling for nearly three years during the feasibility and construction phase.
Surface geology has resumed, and a 7,000 meter drill program is planned for the second half of 2009.
We hold over 25,500 (inaudible) of mining concessions in this prolific silver gold district, and I have no doubt that our exploration will add meaningfully to the mine life of Manantial Espejo.
And now to our newest development project.
On April 14, we announced a joint venture between Pan American Silver and Oracle silver, to try to develop the La Preciosa property in Mexico.
The mineral concessions of La Preciosa and the adjacent Santa Monica and San Juan prospects, cover over 32,000 hectare located in the state of Durango.
Oracle has defined and indicated resource of 10.6 million tons containing 63 million ounces of silver and 94,000 ounces of gold, and an inferred resource of 12.1 million tons containing 72 million ounces of silver and 97,000 ounces of gold.
This was published in a technical report on March 31, 2009.
Rates are 185 gram per ton for silver, and approximately 0.26 gram per ton for gold.
Over 150,000 meters of drilling on 100 meter space holds has already taken place on the property.
The most important structure is covered today, (inaudible) which has a thickness of 2 to 40 meters.
Several other veins have been identified in old underground workings.
Drilling and the surface expressions.
(inaudible) have been met and sampled over multi-kilometer distance, and many of them have yet to be drill tested.
Due to its large size, the property requires a substantial amount of exploration and drilling in order to move to resource into the (inaudible) and indicated categories.
Besides the mentioned resource, the extensive property contains a large amount of new exploration targets.
Some of them have been already sampled and trenched by Oracle, and will be drill tested during 2009.
Over the next year, Pan American will spend a minimum of $5 million for infill drilling, exploration and metallurgical test work.
$2.5 million of this project will be spent to continue the exploration around the known resource.
In order to maintain at 55% interest, Pan American will then provide 100% of the funds necessary to complete the feasibility study and to bring the property into production.
The transition to Pan American as a new operator of La Preciosa is being finalized, and drilling should resume on the property towards the end of May.
We're very excited to explore and develop this large silver deposit with our new joint venture partner, Oracle silver, which will hopefully be our next mine, and continue our steep production growth profile.
- President and CEO
Thanks, Michael.
Okay, you have now heard in detail where we were.
Let's look at where Pan American is headed, and why I remain exceedingly optimistic about our prospects for the balance of 2009 and beyond.
We are maintaining our production forecast for 2009, and our planning to produce 21.5 million ounces of silver, ready to deliver our 14th consecutive year of growth.
We are reducing our cash costs forecast to $6 per ounce, based on the better than expected results we achieved in the first quarter.
We should more than double -- actually nearly triple our gold production this year, and like silver, are maintaining our 2009 forecast for gold at 85,000 ounces.
We will continue our commissioning efforts at San Vincente, and still expect to declare commercial production at this expanded operation early in the third quarter of this year.
It is extremely rewarding, after having been involved with this asset since 1999, to finally be positioned to begin to harvest the benefits of the high grade [literale] vein.
As Michael just described, with Manantial Espejo now moving towards steady state operations, we're going to ratchet up our exploration efforts.
This plus 25,000 hectare property has numerous vein outcrops and shallow targets which have never been drill tested, and I'm exceedingly confident that there's another significant discovery still waiting to be unearthed at Manantial Espejo.
We will continue to prepare our highest cost operation, Quiruvilca, for a period of care and maintenance.
A tough decision, given that Quiruvilca was Pan American's founding operation when it was first acquired back in 1995.
It's been a wonderful mine for us, but it's time, and with its closure, Pan American's cost of production will decline even further.
We can't wait to get going at La Preciosa.
In our opinion, it's a tremendous property.
The land package is huge, as Michael just described, at over 32,000 Hectare.
Our new joint venture partners, Oracle Silver, have already extensively drilled the property, defining a silver resource in excess of 135 million ounces.
It's in Mexico, it's literally within an hour of our established infrastructure in Durango, and in terms of development it's almost at the exact same stage as Alamo Dorado was when we first got involved there.
And the timing couldn't be better, with our development group just becoming available to redeploy on this new project.
With no debt, almost $200 million in working capital, our heaviest capital expenditures now behind us, and well positioned to generate significant positive cash flows for the balance of this year.
We're in exceedingly good shape to aggressively look for even more growth.
Before taking questions, I would like to take a moment to thank all of our employees at Pan American.
I have said on numerous occasions that our core strength is our ability to develop and operate mines in multi-jurisdictions.
That strength is directly related to the depth of experience, and the dedication of the people at Pan American.
We have successfully emerged from a very difficult period, where we had to make difficult decisions and then implement them immediately.
Our people had to make some very real sacrifices, and on behalf of you, our shareholders, I would like to thank them for their efforts.
They have clearly demonstrated that they are Pan American's core strength.
Lastly, the annual silver survey was released in New York this morning.
Unfortunately due to my schedule I was unable to attend the event, and have not yet had at chance to review the latest information on the silver market that was prepared by Goldfield's mineral research.
However, I am confident that what we are likely to find is that investment demand continues to be the driving force behind the silver market, and the current silver price.
And given the prospects for the US dollar, and the fact that I personally do not believe we have emerged from the financial mess that unfolded last year, I would expect this trend to continue for quite a while longer.
Silver and gold should retain their status as a safe haven and a value-retaining investment, as governments around the world continue to print more and more and more currency.
Thank you, and I would ask the operator to now open the lines for questions.
Operator
Thank you, sir.
(Operator Instructions).
Our first question will come from the line of John Bridges with JPMorgan.
Please go ahead.
- Analyst
Hi, good morning, everybody.
Just wondered if you have any idea as to the deterioration in the terms of the contracts if you don't get Durun running again?
- CFO
Sure, John, I can give you some indication.
We have been active in the spot concentrate market over the last month or two, so we do have a pretty good handle on what that might be, and it does vary depending on the quality of the concentrate, but it's probably between $300 and $500 per ton deterioration from the existing terms we have with Durun.
That would be roughly 15% of the NSR value.
- Analyst
Okay.
And in your income statement, you had an investment income line item there.
What was that?
- CFO
Investment income is really primarily just interest generated on our cash holdings.
There is also some other income related to a statement we received on an insurance claim at the Huaron mine of about $700,000.
- Analyst
Okay.
So that's what makes it look a bit bigger.
And then finally, was there any concentrate adjustment coming through this quarter.
It didn't appear to be, but just wondering if it was lost in the numbers.
- CFO
Not material, John.
- Analyst
Many thanks, guys, best of luck.
- President and CEO
Thanks, John.
Operator
Thank you, we'll move to our next question from the line of Steve Butler with Canaccord Adams.
Please go ahead.
- Analyst
Well, good morning, Geoff, and everybody.
Question for you, congratulations on the Manantial, it's a very nice ramp up on the commercial production there.
On San Vincente, the ramp up there towards commercial production at the higher level, Geoff, or Steve, are we talking about tons per day about 700 to 750 tons per day, is that the correct expansionary number at San Vincente?
- COO
Yes, Steve, the design capacity is 750 tons per day.
I will say that during April, we have seen extensive days -- four or five days in a row where we've achieved those tonnages already.
Things are looking good there.
- Analyst
Okay.
And Rob, you mentioned $300 to $500 per ton potential on the spot based deterioration on your copper silver concentrates.
We don't have any sense of tons per year that you may produce from your Peruvian operations of that particular concentrate.
Do you have an order of magnitude tons per year or per quarter that you produce of that copper silver concentrate?
Thanks.
- CFO
Sure, Steve, it's somewhere in the region of 18,000 to 20,000 metric tons per annum.
- Analyst
Metric tons per annum.
Okay, and you said as well, Rob, I'm a bit surprised, but you said there's no material -- I mean I see you stated your realized silver price, and you stated your decline in realized prices year-over-year, but in terms of realized zinc, lead, copper, you were pretty much spot on or near the LME average, is that the idea?
- CFO
Correct.
- Analyst
Okay.
Thank you.
- President and CEO
Thanks, Steve.
Operator
Thank you, we'll move to the next question from the line of Haytham Hodaly with Salman Partners.
Please go ahead.
- Analyst
Good morning, Geoff, everybody else.
Great quarter.
Couple of quick questions.
One just with regards to Quiruvilca, wondering what's the latest estimate on the closure costs, and over what period of time?
- COO
Right now we have the closure costs are part of our reclamation liability that we carry there.
We're looking up the the number right now.
- CFO
The present value is just shy of $20 million, is what we have provided for in the balance sheet.
- COO
And the majority of that cost is to continue to operate and ramp down the water treatment plant for the mine dewatering thing.
- President and CEO
Haytham, that's a fairly long term expenditure.
There wouldn't be a significant sort of one-time cost coming through.
The vast majority is, as Steve suggested, we will have to continue to treat for acid water, and that cost is at the moment around $1.2 million to $1.4 million a year.
And that's going to continue for quite a period of time, as we kind of close up, frankly close up a lot of the mine openings and cut down on the drainage of water coming out of the mine.
- Analyst
So, Geoff, will that hit the actual income statement outside of reclamation of accruals?
- President and CEO
No, actually I think we're, at this stage, Haytham, we're fully accrued for that future expense.
It will, on an annual basis, it will be a cash impact, but it should not go through the income statement.
- Analyst
So (inaudible) -- fair enough.
And the rest of my questions have been answered.
That's great, gentlemen, thank you.
Operator
Thank you, we'll move to the next question from the line of Chris Lichtenheldt with UBS.
Please go ahead.
- Analyst
Good morning.
Two questions, first, a bit of a housekeeping question, but you mentioned the lower cash cost guidance for the year.
Does that include revised byproduct metal price assumptions.
- CFO
No, it doesn't, Chris.
That's actual results in Q1, and then our budgeted results for the remaining three quarters at our original budget assumption, assumed byproduct prices?
Okay, so still 725 gold, I guess.
Correct.
- Analyst
Okay, great, thanks.
Secondly, you mentioned the strategic alternatives, and obviously you have a growing cash position and the access to the line of credit.
Can you just talk a little bit about what you may be looking at this year in terms of producing, non producing-type assets, and the second part of that would be, would you consider looking at a silver stream-type agreement.
- President and CEO
Okay, Chris, I'll take that question.
I certainly would love to do another transaction similar to the arrangement we've just done with Oracle Silver.
I think that is clearly where we can bring the most value to an equation by using our strengths of being able to, essentially bring a project from an exploration stage through pre-production and development feasibility.
And then ultimately construction, and there are a limited number of those type of opportunities, but they're there, and we're looking at them very carefully.
At the same time, there are a couple of already in production opportunities that I think would be very good strategic fits with Pan American, in terms of metals, in terms of location, and we're going to continue to forward our discussions on those.
In terms of silver stream, I don't see that as being our business.
I think there is clearly a player in that game who has built a very interesting business model.
It's not a model that I am particularly a big fan of.
I think we provide some additional abilities versus being passive investors, as we just demonstrated over the last quarter.
We can do some things to change our future and change our fortunes, and that's what we do best.
So, I don't see just essentially spending money today to have someone deliver me silver in the future.
That's not a game we're interested in.
- Analyst
Okay, great, makes sense, thanks a lot.
- President and CEO
Thanks, Chris.
Operator
Thank you, we'll move to the next question from the line of David Christie with Scotia Capital.
Please go ahead.
- Analyst
Hi, guys, just a quick question on DD&A.
It looks like your cost per ounce on the non-cash side for Manantial and some of the other assets was a little higher this quarter than it had been, so a trend we'll see for the next little while?
- CFO
It is, David.
It's likely going to be a continuous charge in and around that neighborhood because of the impact of commercial production declared at Manantial Espejo.
So we are taking a full depreciation charge on a per ton basis at Manantial.
- Analyst
Yes, so, what do you see for the whole company for a cost per ounce basis for the year?
Because it's a higher amount on that mine and probably the new San Vincent, as you move forward?
- CFO
It is higher, just looking at the budget here, David, I think for the year, we are looking at about a $3.40 per ounce.
- Analyst
Exactly.
Okay, perfect.
That's exactly what I have.
I just wanted to make sure I was on the right track.
Okay, perfect, thanks, guys.
- President and CEO
Thanks, David.
Operator
Thank you, sir.
(Operator Instructions).
Our next question is a follow-up question from the line of Steve Butler.
Please go ahead.
- Analyst
Guys, I may have missed it.
Michael, in your address, but on the Oracle Silver transaction, La Preciosa, what is the plan of attack for expenditures there or infill drilling, is that the main focus or exploration -- what is your focus for the next 6 to 12 months, let's say.
- EVP Geology and Exploration
Yes, Steve.
It's quite a large resource already available there.
There will be a large amount of infill drilling to move that ahead and to measure the resources and then push into feasibility, but at the same time as described, there are lots of many exploration targets around this resource, maybe in the surrounding which could be part of the same mine and same production.
So we're going to go ahead there with one or two weeks and explore this targets at the same time.
- President and CEO
So total expenditure, Steve, we're planning about $5 million over the next 12 months as a minimum.
Of that, about half of that will go to -- we'll call it the development aspect, which is the infill drilling as Michael described and metallurgy and land acquisition, et cetera, moving things forward.
And the other half will go to much more pure exploration to look at some of these other targets and see if they contain similar quantities of silver as they've already been defined.
- Analyst
Any synergies here at all.
Geoff, I'm not sure spatially where it sits.
Vis a vis La Colorada or is it too far away?
- President and CEO
No, there's actually some very, very good synergies on the administration side, Steve.
We haven't really looked at potential tax synergies.
They may be available as well, but our base of operations in Mexico is Durango.
That's where we have essentially our country office, and the property is, by road, about an hour's drive outside of Durango.
So yes, we are going to be able to use our current infrastructure in Mexico to manage this project.
- Analyst
Okay, thanks, Geoff.
- President and CEO
You're welcome.
Operator
Thank you, sir.
(Operator Instructions).
Management, at this time we have no additional questions in the queue, and I'll place the line back to you at this time for any closing remarks.
- President and CEO
Thank you, Operator.
And thank you, ladies and gentlemen, for joining us here this morning.
It certainly was, for me, a very pleasing report on the heels of our last quarter, which was a very unpleasing report, but I very much look forward to what we have ahead and to talking again in about three months' time.
Thank you.
Operator
Thank you, management.
Ladies and gentlemen, at this time we will conclude today's teleconference.
We do thank you for your participation in today's conference call.
You may now disconnect and please have a pleasant afternoon.