Pan American Silver Corp (PAAS) 2011 Q3 法說會逐字稿

Hello this is the conference operator. Welcome to the Pan American Silver Corporation's third quarter 2011 results conference call and webcast. As a reminder all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions) At this time I would like to turn the conference over to Mrs. Kettina Cordero, Coordinator of Investor Relations. Please go ahead.

Joining me here today are our President and CEO, Geoff Burns; our Chief Operating Officer, Steve Busby; our Executive Vice President of Geology & Exploration, Michael Steinmann; and our Chief Financial Officer, Rob Doyle. I would like to start today's call by reminding our listeners that this call cannot be reproduced or retransmitted without our consent, and by indicating that certain of the statements and information in this call will constitute forward-looking statements and forward-looking information, within the meaning of applicable securities law. All statements, other than of historical fact, are Forward-looking Statements. These statements reflect the Company's current views with respect to future events and they are necessarily based upon a number of assumptions and estimates that while are considered reasonable by the Company in, are apparently subject to significant business, economic, competitive, political, and social uncertainties and contingencies.

Many known and unknown factors could cause actual results, performance, or achievements to be materially different from those expressed or implied by such Forward-looking Statements. And the Company has made assumptions and estimates based on, or related to many of these factors. We encourage investors to refer to the cautionary language included in the most recent news release dated November 8, 2011. As well as those factors identified under the captions, Risks Related to Pan American's Business, in the Company's form 40-F and Annual Information Form. Investors are cautioned against contributing undue certainty or reliance on forward-looking statements. And the Company does not intend or assume any obligation to update these Forward-looking Statements or information, other than as required by law. With that, I will now turn the call over to Geoff Burns, President and CEO.

Good morning, ladies and gentlemen, and welcome to Pan American Silver's 2011 third quarter earnings conference call. This morning we will be discussing our third-quarter operating and financial results that were released yesterday evening, provide you with our Outlook for the remainder of 2011, and update you on our exploration programs as well as the progress of our development projects. As it become our custom, I will begin with some general remarks before passing the call to Steve, Michael, and Rob, who will provide more detailed commentary. I would like to start by letting you know that yesterday, our Board of Directors approved the distribution of our forecast dividend for this year. in the amount of $0.025 per share. The payment will be made effective on or about Monday, December 5, to holders of record of our common shares as of the close of business on Monday, November 21.

In addition, to returning cash to our shareholders, directly to our dividends, we have also been returning cash by way of a normal course issuer bid, which we announced on August 26. Wherein, we could buy up to 5% of our issued and outstanding shares. As Rob will describe in a few moments, we have been actively repurchase some of our common shares. It is our opinion that the market price of our common shares does not fully reflect the underlying value of our money operations and our future growth prospects. And as such, our shares represent an appealing investment, where a portion of our access cash flow. While we have significant capital requirements ahead of us with depending development of Navidad, our major growth project, we remain very comfortable that we can meet this need as well as continue to directly share in our good fortune with our shareholders through dividends and our share-repurchase program.

Now let's recap what we accomplished during the third quarter. We produced 5.6 million ounces of silver at a cash cost of $9.58 per ounce, net of byproduct credits, which was slightly lower than we had planned. Our Mexican mines, La Colorada and Alamo Dorado continues to perform extremely well during the third quarter, a trend that they had been on all year. As do our San Vicente mine in Bolivia and our Manantial Espejo mine in Argentina. However, as Steve will discuss in more detail, we made some operational decisions in Peru, which will help our productivities in the long-term, but have come with some short-term production and cost pain.

From a financial perspective, our performance was very respectable and quite an improvement over the same period a year ago. We generated adjusted net earnings of $45.6 million or $0.42 per share, a 66% increase as compared to the third quarter of 2010. Our mine operating earnings rose to $106.2 million, which represented an increase of 73% for the same period a year ago. At our operating cash flow before changes in working capital was a very healthy $100 million or $0.93 a share. The sharp decline in the price of silver and base metals as well as the rapid strengthening of the US dollar, right at the end of the third quarter, resulted in us having to recognize the foreign exchange loss of $12.5 million, predominately on our Canadian dollar bank balances, as well as requiring us to have to record negative adjustments in our concentrate sales of approximately $5 million. Both of which obviously didn't help our earnings. Having said this, we have subsequently seen silver rebounds almost $35 per ounce and the US dollar had we can begin. And a large proportion of the negative adjustments or just described, have argued been reversed. We ended the quarter with nearly half $1 billion in cash and working capital of over $625 million. Both our cash balances in our working capital had been consistently and steadily growing throughout the year. The third-quarter was at the best production quarter we have ever had. But we have never been in better shape financially. Now over to Steve who will run us through our operations and development projects. Steve.

Thank you Jeff and good morning. The third quarter of 2011 brought us a wealth of challenges that we are successfully confronting. With our projects advancing very well and our operating teams adapting our business to the ever-changing political environments where we operate. As Geoff mentioned, our consolidated third-quarter silver production of 5.6 million ounces, at a cash cost of $9.58 per ounce was about 8% below our production expectation and 13% above our cash cost target. The largest contributor to our production shortfall in past -- cash overrun give him a decision we made at our Morococha [Huaron] mines in Peru to immediately demobilize roughly 25% or 500 of our inefficient and ineffective contract miners, in favor of enhancing our own employment with well-trained safe and productive minors, whom we will develop ourselves using first-class minor training facilities that we have established at both of these sites. We have found that the quality and efficiency of the contract miners as severely degraded. And the highly competitive environment that exists in Peru right now. And we were not accomplishing the production and advances needed to sustain our operations effectively.

Our idea is to focus quality contractors on major long-term development headings, while developing trained and productive employees for soap mining that we will systematically convert as much as possible to more productive mechanized mining methods over the next few years. We will use our training facilities, not only to recruit and to develop new miner's from the surrounding communities, but also to enhance the capabilities of our existing workforce. Despite suffering some production setbacks following this decision, e are extremely confident that it is the right decision to maximize the long-term profitability of the [Huaron] Morococha mines. These mines have both been in operation for nearly 100 years and we see absolutely no reason they would not continue for at least 25 years or more.

During Q3, we produced 383,000 ounces of silver at Morococha and 667,000 ounces at Huaron, at a cash cost per ounce of $18.78 and $15.07 per Morococha [more on] respectively. Collectively following about 0.5 million ounces short of our forecast of production and Q3 for these two mines. This is a significant and vitally important production enhancement initiative to adapt to the changing environment and we expect it will take 6 to 12 months to mobilize new equipment and get our new workforce fully trained to maximize the profitability available at both of these long life mines that hold significant reserves and resources. Our Manantial Espejo mine in Argentina produced number 1.1 million ounces of silver and a cash cost of $6.56 per ounce during Q3. Compared to 1 million ounces at a cost of $3.65 in Q3 of 2010. We were able to increase our production, even though facing delays in getting accelerated open pit mine plan into place, as we adapted the operation to the heightened importation restrictions put into place by the Argentine government. These heightened restrictions have caused considerable delays in the delivery of our important spare parts and material supplies resulting in a decrease in our equipment availability and increasing cost as we find alternatives. Which in several cases included temporary mobilization of contract or rental equipment to overcome some of our critical equipment shortfalls. We're in the process of increasing our on-site warehouse a stock of spares and materials, to adapt our business to the added delays caused by the sudden heightening of the importation restrictions and expect their costs will eventually return to levels that we had been experiencing in the first half of 2011.

Moving on to Bolivia, our San Vicente mine produced 751,000 ounces of silver at a cash cost of $14.39 per ounce during Q3, compared to 712,000 and the cost of $8.54 the year before. San Vicente has proven to be a productively stable operating mine for us, although our cost has been creeping upwards largely fueled by external costs, associated with off shore smelting and refining of our copper concentrates, as well as the higher metal price effects on our government royalty payments. Our Mexican mines continue to deliver exceptional results. With [Alamo Dorado] producing nearly of was 1.4 million ounces of silver at a cost of $4.73 per ounce and [La Colorada] produced 1.1 million ounces at $7.84 per ounce in the third quarter. Both ahead of our expectations.

Last year in Q3, Alamo Dorado produced 1.8 million ounces at a cost of $2.98 and La Colorada produced 870,000 ounces at a cost of $8.67. Our Alamos Dorado Leach tank and expansion project is on time for Q1 2012 completion after which we expect silver recoveries to improve by about 2%. Our phase 3 drilling is progressing well at Alamo Dorado and we will be looking to secure additional open pit mine equipment to allow us to begin pre-stripping phase 3 during 2012. Although our analysis is not yet complete, we are confident that face [re-pit] is economic at today's prices and we will add at least one year of life to our mine plan. I would also like to comment that our expiration on deepening the main mineralized Candelaria structure at La Colorada continues to excite us. And we have developed astonishingly productive and highly profitable systematic mine advanced scheme, that is expected to provide us continued solid operating performance for the next 7 years and beyond.

On the project front, the company released a positive preliminary economic assessment for the La Preciosa joint venture cost project. On a 100% basis, the PEA estimates an average annual production rate of 6.8 million ounces of silver and 11,800 ounces of gold at a cash cost of $11.84 per ounce, net of by product credits, for 12 years with the remaining expiration potential that could extend the mine life. 100% basis after tax net present value, at a 5% discount rate is expected to be $315 million, for the project internal rate of return of 24.3%, using prices at $25 silver and $1250 gold. The project exists in our backyard and it is a style of development our team in Mexico knows well, how to build and how to maximize profitability. We feel that given our traction to this style of the project, along with a result of the PEA, it is justified to complete a feasibility study, and that is what we have undertaken to complete during 2012.

Down in Argentina, our Navidad project continued to make good progress on the development of the feasibility study, which is expected to be completed before year end. The mine in concentrate production schedules for the feasibility study were completed and work continues on finalizing the project capital and operating costs estimates. The 15,000 ton per day ore production plan will produce an average of nearly 19 million ounces of silver and 32,600 tons of lead per year for a 16 year life, with ample opportunity to expand resources both near the existing 8 deposits, as well as the potential for finding additional deposits on the site. A draft of detailing spend design and cost estimate was received during the quarter and the 2011 infill drilling campaign was completed just in the previous month. Work continues on a refinement of the project's environmental impact statement, which will be immediately available for submittal once the law which bands open pit mining is reformed.

We're pleased with the results of the federal and provincial elections, which solidly puts President. Cristina Kirchner in power for another term both nationally and in for the first time provincially in an Chubut, along with the new governor of Chubut, Martin Buzzi, who has indicated he will align with the presidents policies and objectives. The new provincial governor and legislature's take control in mid December and we so confident that the mining law reform debate is a high priority on our agenda as they look to bring productive industry to a very needy area of the province.

Elsewhere, I am pleased with the progress we have achieved in constructing our new shops, offices, and camps at Morococha to allow for the relocation of these facilities during 2012 and make room for Chinalco Toromocho mine development. These are first-class state-of-the-art facilities and will no doubt play a significant role in our productive mine transition initiative. To finalize, I like to mention that given our decisions to launch contractor demobilization initiatives that will run in Morococha, as well as adapting our [Manantial Espejo mine] to heightened importations restriction's in Argentina, we are reducing our full-year consolidated silver production guidance to 22.5 million ounces from our previous estimate of 23 million to 24 million ounces. And we are also reducing our consolidated base metal production guidance for zinc, lead and copper to 35,000, 12,000 and 4500 tons respectively. We are maintaining our previous increase in full-year consolidated gold production guidance at between 80,000 and 85,000 ounces and we now expect to come in at the higher end of our previously released cash cost guidance of between $8.25 to $8.75 per ounce. With that I will now turn the call over to Michael Steinmann for the expiration update.

Thank you Steve. Good morning. I'm sure you are eager to hear about the expiration results from [ProTech]. Like every quarter I would like to start with some drill statistics. The last three months have been very productive. We passed the 100,000 meter mark in September and ended the quarter with 101,000 meters of drilling for our reserve and replacement program. We're at 76% completion and right on track of our plan and have more than recovered from the shortfall we experienced at the beginning of the year. Including the ProTech drilling at Navidad as well as the Greenville programs, we finished the first nine months of the year with a total of 144,650 meters drilled for 84% of our 171,000 meter plan program. Navidad entered the quarter with nearly 19,500 meters, an impressive performance which was topped by even more impressive results. The second-largest program was executed at [Manto Italia] -- drilling and Greenfield expiration on demand returns some spectacular results. [Morococha] added another 12,900 meters or 9000 meter respectively. Due to the positive results we have encountered a level so far this year that we decided to expand the program by over 7000 meters.

There were plenty of reasons to increase drilling at La Colorada. During the quarter the rush demand of our main structure in [Candelaria] returned many impressive results. For example the hanging wall [vein] in level 535 for our drilling intersected 1.6 kg of silver over a rate of 6.45 meters. Detailing on the [Calside] reported intercepts of 8.89 meters at 685 grams of silver and 9.45 meters of 766 grams of silver. Gold with additional 3% to 9% lead and 5% to 6% zinc. The deeper we go, the more hanging in [full reef ] splits appear in our drill holes. The hanging wall splits at the [MC2 rain] are highly economic. For example 2.3 meters wide with 1922 grams silver together with nearly 12% combined lead and zinc. For roughly 2.5 meters at the 858 grams of silver and over 13% base metals. La Colorada is on way to accomplish another spectacular reserve replacement this year and I'm really looking forward to reporting the final numbers to you in February of 2012. Earlier on I mentioned the drilling results from Manantial Espejo have all been extremely positive. So let's straight go don't to Argentina.

Our Greenville program advanced very well in the last 6 to 8 months, thanks to a mild winter. We mapped and sampled large parts of our plus 25,000 [active] land holdings surrounding the mind, -- and identified 32 expiration targets. So far we started detailed work on the 11 of them and many returned positive results. And we followed up during the [southern hemisphere] summer. We have had another spectacular year with our reserve replacement drilling at Manantial Espejo. Culminating with the discovery of a stop work in the football of [Calcatreu]. You might recall Calcatreu is one of our main open pits of Manantial. I guess spectacular is the right word to describe intersections of 1.8 meters at 2830 grams silver and 71 grams gold, or 13 meters at 714 grams silver and 2.17 gram gold. Another 2 meters of 896 grams of silver at 5.5 gram of gold, just to mention a few. Manantial Espejo also kept expanding, with true results of 5.75 meters at 506 grams of silver, or 5.7 meters at 252 grams of silver and over 13 grams of gold. These are results of proud of, am I'm confident we will more than replace the reserves mines during 2011.

Now with our focus (inaudible) extension on -- will program on Calside Northwest. [Galena Hill], [Marriot Hill], on Loma De la Plata deposits, finalizing 180 holes during the third quarter. In filtering Galena Hill keeps returning large intersects with very high grades. For example, 77.7 meters at 308 grams silver and 6.43% lead. This includes 22 meters of 827 grams of silver and 18.6% lead. Another spectacular hole returned 156 meters at 155 grams of silver and 2.3% lead. Including 67.5 meters at 205 grams of silver at 3.05% lead. Starting only 46 meters below the surface. But I think the biggest surprise came from Calside Northwest, the deposit further to the Northwest. 16 meters at 285 grams of silver and 10 meters at 1.6 kg of silver, or 27 meters at 137 grams of silver just to name a few. This was quickly indicate that the Calside Northwest will be increased substantially. Our -- focused on our large land holdings on the Lucita project in Zecatecas which contains a large number of (inaudible) gold veins. Surface sampling and mapping kept us extremely encouraged at the first 3,000 meters drill program started last week. I'm looking forward to sharing with you some of the results at the end of the fourth quarter.

The year is advancing fast and reserve estimation time will start soon. December and January will be a very busy time for our site geology teams in order to compare all of these positive results and include them in the analog of estimates. I'm looking forward to giving a detailed report on our reserves and resources in February and to discuss our expiration plans for 2012. Now to Rob for the financials.

Good morning ladies and gentlemen. As Jeff mentioned, our Q3 was not a record-breaking quarter we have delivered in Q1 and Q2 of this year. From a financial perspective, it was to another extremely solid quarter. In addition to that curing another quarterly dividend, we generated adjusted earnings of $45.7 million after subtracting gains on derivatives, which translated to adjusted basic earnings per share of $0.42 compared to $0.26 for the corresponding period in 2010, a 62% increase. On operating earnings of $106.2 million, 73% higher than the mine operating earnings in the comparable period of 2010 and an implied gross margin of 48%. Cash flow from operations before working capital changes of $99.9 million and 74% increase from the $57.6 million in the comparable quarter last year. Revenue increased by 34% to $220.6 million from Q3 2010, due to higher realized metal prices despite the significant reduction in quantities of silver sales. These metals accounted for 86% of sales during the quarter, up from 81% a year ago.

Quick results for Pan American. The summary at what we delivered in Q2, so I would like to mention several of the factors that prevented us from getting closer to our record mine operating earnings of $118.6 million and record adjusted earnings per share of $0.71 that we saw in Q2. Firstly, earnings for Q3 were negatively impacted by a $12.5 million FX loss which equates to $0.12 per share, predominantly on the portion of our treasury that we hold in Canadian dollars. As a [Lueny] declined sharply against the [Euro's] dollar in the latter part of September. Most of that move has subsequently reversed and we continue to believe in our strategy to diversify up to half of our treasury in currencies other than the US dollar. Secondly, we have sold 440,000 less ounces of silver than we did in Q2, which was the principal reason that sales declined by $11.3 million in Q3 compared to Q2 and why mine operating earnings were lower.

So much of the first two quarters of the year, we ended up selling significantly less silver than we produced during Q3. Mostly the result of timing of shipments. In fact, are -- into that 0.5 million ounces which was the largest contributor to the $6.9 million increase in inventories are up to the canvassing on our balance sheet. Have these ounces been sold at $32 per ounce during the quarter, additional after-tax earnings of approximately $6.2 million were $0.06 a share would have been reported. We should see the benefits from the sale of these additional ounces in the fourth quarter as we will attempt to reduce our door inventories before year end. Thirdly, we recorded negative sales adjustments in Q3 of $5.2 million as a direct consequence of the decline in silver and base metals in September, as we are required to mark-to-market previously reported sales that were still subject to open quotation periods under our concentrated contracts. These adjustments directly impacted sales and therefore mine operating earnings and ultimately had an after tax effect of around $3.5 million or $0.03 per share in Q3. In total, these the items negatively impacted our Q3 earnings by about $0.21 per share.

Lastly, an additional reason that mine operating earnings in Q3 led Q2 levels, was the treatment of 3.4 million margin related to dora stolen from Alamo Dorado mine in July. While we have recovered the last margin to an insurance claim, accounting convention dictates that this amount is reflected in other income does not have to mine operating earnings as you would in a normal course. Our effective tax rate in Q3 jumped up to 43%, double the rate we calculated in Q2. We would expect something like 35% effective tax rate in the long-term, so Q3 was higher than average. The primary factor that pushed up the effective tax rate the quarter were in ethics lost on company lines in Argentina, withholding taxes on inter-company dividends and interest payments, and are continuing assumption that expiration expenses at Navidad and at La Preciosa will not be tax effective. The detailed reconciliation of our effective tax rate can be found in section 5 of our Q3 MD&A.

In late August, we announced our intention to make a normal course issuer bid to purchase up to approximately $5.4 million of our common shares representing 5% of Pan American's issued and outstanding shares. We commenced to the share buyback program during Q3 in and to date, have purchased around 2.2 million shares at an average price of $27.43, for a total consideration of $61.2 million. From a cash flow perspective, Q3 was pleasing. Cash flow from operations before working capital movements was a healthy $99.9 million or $0.93 per share. We used $30.6 million of that to buy our shares back and pay dividends. We invested $32.3 million in capital programs and still banked $24.1 million. Working capital increased to $47.5 million to $625.7 million at the end of Q3. Primarily on a count of strong cash flow of operations and the reclassification of certain Argentine value, added taxes to current receivables due to improved collections history.

In September, Peru's parliament approved new laws to change the scheme of royalty payments and introduce the new special mining tax, which are effective from October 1, 2011. Under the previous tax schemes, royalties were based on net sales. Under the current law, royalties are based on operating profits and royalty rates that vary depending on operating margins. In the case of the calculated royalty payments are less than 1% of net sales than the company will pay a minimum relative 1% of net sales. Additionally, new special mining tax has been introduced which is also based on operating profits and a tax rate of varies depending on operating margins. The company's calculations for the change in the royalty and the new tax indicate that no material impact is expected on the results of the company's previous operations. With that I'll hand it back to Jeff for some closing comments.

Thanks Rob. Before opening up the call to questions I wanted to provide some comments on some of the recent events in Argentina. October 23 Argentina held it's Federal Elections and Cristina Fernandez de Kirchner secured a second term as president with a landslide victory. In addition, her FPV party, [Friend of Para Victoria] also won the majority of the legislature. Three days later, on October 26, to a presidential decree, she announced that all oil gas and mining exporters are going to be required to repatriate 100% of their sales receipts in Argentina. While we are still assessing the implications of the procedures we will have to follow under these new regulations, and ultimately what impact they will have on our Manantial Espejo mine and our Navidad and Calcatreu development projects, at present, there are no new restrictions placed on the repatriation of profits out of Argentina. Consequently, we currently believe that the likely impact will be in the form of some additional transaction fees, around 2% in total on the conversion our sales receipts into Argentine pesos and then on our net profits back into US dollars, before we repatriation back out of Argentina.

Perhaps more importantly, I view this development and other actions that have recently been announced as positive steps for the country. With her new stronger mandate, Ms. Kirchner is starting to take the actions that are necessary to rein in an inflation rate that has been frankly out of control over the last several years. It may take some time and some additional actions, but if she is successful in getting Argentine's inflation rate under control, it will be a hugely positive result long-term for both our Manantial Espejo mine and for the development of Navidad project. Lastly, there is no doubt that Christina is pro-development. And with her FPV party in control nationally as well as in Chubut, we see this is an extremely favorable environment for the change in the mining law that we need to see in Chubut for us to receive at Navidad. We have and we will continue to keep the local communities around Navidad as well as the provincial government in Chubut completely informed of our programs. And I remain confident that our transparent approach and willingness to work with all the local stakeholders will be rewarded. With that, I would now like to ask the operator to open the lines for questions and answers. Thank you.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) We will pause briefly while we will wait for questions to queue.

Ralph Profiti of Credit Suisse. Please go ahead.

Hello. Good morning and thanks for much. Steve, in your prepared comments you mentioned competition as one of the backdrops of seeing the decision to go with a more localized -- sorry -- a more Company-specific labor force. Just wondering, where that competition for labor is coming from? It has been well-documented about Peruvian growth and mining projects. But those are number of years away. I wondering if you could expand on that a little bit?

Yes, sure, Ralph. What we are seeing there is really from our neighboring mines. Primarily zinc and base metal mines. There have been some expansions. There have been 1 new zinc mine that I am aware of. Really in the surrounding areas where our workforce sits. That has been our major competition there.

Can we get the current split between contract workers and Company workers at both those operations? Maybe secondly, where does labor sit as a proportion of total costs of both those mines? How do you see that evolving in 2011 and 2012 versus 2010.

Sure. Right now the split between contractors, before we made this demobilization moves, the split was probably about 50% to 60% contractors, 40% employees. Where we see the cost, if you look back over the last years, our labor cost in Peru are typically around 55% of our overall cost. As we start to mechanize and become more efficient in our operation, we anticipate that number to come down somewhat. Generally speaking, a narrow grain mines like this that is the style of cost of distribution that we see with labor. That labor includes contractors and our own labor.

Got it. Thank you.

Chris Lichtenheldt with UBS. Please go ahead.

Good morning, everyone. First, just wanted to touch base on cost. If we look at that cash guidance for the year, I think in the fourth quarter, you have to beat third quarter significantly to get still even to the top end. So, I know it is a bit of a noisy number with byproducts and everything. Can you give us a sense of where -- what will cause cash costs in the fourth quarter to be lower? Will it be better pricing, better byproducts, or actual relief on mining costs?

Yes, Chris, I think the 3 primary areas. The 1 is, we did incur some costs to demobilize these contractors in Peru. We anticipate that cost to go away in the fourth quarter. We're still trying to assess -- how much of that we actually incurred as a demobilization cost versus remobilizing and recruiting costs that were coming in. But we did anticipate a reduction in there.

Likewise in Argentina. We incurred some costs, as I mentioned, for having to mobilize some contractors and some rentals gear during Q3. To overcome some equipment availability issues that we've had. We are starting to see some relief from that. We are going to see some cost reductions there. The third area that is probably the most important area, is increase of gold production that we are forecasting down Manantial Espejo. Which, obviously, contributes a lot to our cash cost.

Okay great that's very helpful. That's great. Just secondly, had another disclosure question for Rob. If this is too hairy for the call, you can always follow up with me after. I'm just trying to understand, the earnings are probably still a little bit later than I would expect it even with the cash cost and production reported. Just as an example, if I look at your mine-by-mine disclosure, at Morococha for example. Cash costs were high at $18.78 per ounce. Fully loaded costs, total costs per ounce were $22.56, but still well below what I would think the realized silver price is. Yet that mine you disclosed a net loss there. So, do you have any guidance to help me understand how you ended realizing losses? Is that just timing of sales? Do you have any thoughts this matter?

Yes, sure, Chris. I am happy to go through it in detail. Just to point out that, of course, the financial results are based on sales as you say. As opposed to the operating results which are on a production basis. So, they could well be a timing difference with inventories there. Of course, the Peruvian mines we also hit particularly heavily with price adjustments in the quarter, because of their concentrate production and exposure to the base metals, which came off with silver in the latter part of September. The negative price adjustments, certainly impacted the Peruvian operations more than our others.

Okay. That make sense. Okay. I'll leave it there for now. Thanks a lot.

Sure.

(Operator Instructions) There appears to be no further questions at this time. I will turn the call back over to Mr. Burns for any closing comments.

Thank you, Operator. Thank you everyone for joining us again this morning for our earnings conference call. We look forward to talking to you in early 2012 when we are ready to release our final annual 2011 numbers. Thanks again.

Ladies and gentlemen, this concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.