Pan American Silver Corp (PAAS) 2015 Q1 法說會逐字稿

Welcome to the Pan American Silver first quarter 2015 conference call and webcast. As a reminder, all participants are in 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 Ms. Kettina Cordero, Manager, Investor Relations. Please go ahead, Ms. Cordero.

Thank you, operator, and good morning ladies and gentleman. Welcome to Pan American Silver's 2015 first quarter conference call. Today I'm joined by our CEO, Geoff Burns; our President, Michael Steinmann, our Chief Operating Officer, Steve Busby, and our Chief Financial Officer, Rob Doyle.

I would like to start this call by reminding our listeners that this call cannot be reproduced or retransmitted without our consent and that certain 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 statements of historical facts are forward-looking statements that reflect the Company's current views with respect to future events and are necessarily based upon a number of assumptions and estimates that while considered reasonable by the Company are inherently 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 a 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 our news releases dated May 11, 2015, as well as the factors identified under the captions Risk Related for Pan American's business in the Company's most recent Form 40-F and annual information form. Investors are cautioned against attributing undue certainty's 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 leave you with Geoff.

Thank you, Kettina, and good morning ladies and gentlemen. As has become our customary format, I was start with a brief recap of our first quarter, then I will at let Steve, Michael and Rob provide you with more granularity on our operations and projects, our expiration programs and our financial performance during the first quarter, before moving onto a short Q&A.

Let's get started by looking at our performance. We produced 6.08 million ounces of silver and 37,500 ounces of gold at a cash production cost of $11.71 per ounce net of by product credits. While our reasonable start to the year, both our gold and silver production were somewhat behind where we thought we are we be at the end of March. There are two main reasons for this.

The first was about an eight week delay in pre-stripping of the Maria pit, at Manantial Espejo in Argentina, which delayed the release of some very high-grade silver and gold ore until about mid-April. In addition, our mining and stacking sequence at Dolores was slightly off schedule and some of the high-grade ore didn't make it onto the leach pads until about mid-March, and given the long leach times involved, didn't start to show up in the pregnant solutions until early April.

While a little disappointing in terms our first quarter production, the good news is that both operations have recovered nicely through April and now into mid-May. And whilst Steve will likely touch on this in more detail in a few minutes, at Dolores we're virtually back on track for both gold and silver and by the end of May should be in a similar position at Manantial.

The lower silver production and lower gold production, which we treat as byproduct credit, combined to push our cash cost higher even though our actual consolidated property expenditures were well below budget. I fully expect to see our cash cost to decline in the second-quarter and over the balance of the year as both Dolores and Manantial rebound from their slow start. Truth is, that if the quarter ended on April 30, versus March 31, I'd be singing quite a different song.

The balance of our operations perform pretty much as expected with some silver production gains recorded at La Colorada and Huaron offset by a small shortfall at Morococha. The one very pleasant surprise was that our AISCSOS declined to $14.24 during the first quarter, primarily reflecting the lower property expenditures I just mentioned and the expected decline in our sustaining capital expenditures this year.

During the first quarter, we produced slightly less than 9.3 thousand tonnes of zinc, down from the first quarter from last year, about the same amount of lead, at 3.5 thousand tonnes, while producing some 82% more copper, at 3.1 thousand tonnes. During the first quarter we decided to switch to higher value copper rich ores at Huaron, and particularly at Morococha, so the decline in zinc production and the extra copper production was planned. For the balance of this year, we are now expecting increased copper production as we continue to mine copper rich zones at Morococha.

During the first quarter, we generated revenues of $178.1 million, down a little over $30 million from the first quarter of 2014 due to lower volumes of silver sold and due to lower realized silver and gold prices. As a consequence of the decline in revenues, our mine operating earnings fell to $2.6 million, and we posted an adjusted loss of $19.9 million, or $0.13 per share, as compared to earnings of $12.8 million, or $0.08 a share, a year ago.

Our quarterly earnings were also negatively affected by a $6.4 million foreign exchange loss of which most was the result of the effect of a strengthening US dollar on our Canadian dollar cash bank balances. Our operating cash flow for the quarter was $11.9 million, or $0.08 per share, as compared to $0.24 a share last year.

We continue to maintain a healthy balance sheet with $292.4 million in cash and short-term investments and working capital just under $500 million at March 31. Our total debt inched up about $5 million during the quarter to $65.3 million as a result of some short-term borings in Argentina, which we will be repaying over the next few months as Manantial Espejo's production increases. We also added considerable financial flexibility with the recently announced $300 million revolving credit facility which we could draw on if needed to fund additional organic or external growth opportunities.

And speaking of organic growth, yesterday our Board of Directors approved $112.4 million investment to build a pulp agglomeration plant and commence underground development to expand production at our Dolores mine. So in addition to the La Colorada expansion, which has been progressing nicely, we now have a second low risk, modest capital, organic growth project to focus on. As we previously announced, the La Colorada expansion project is expected to increase the mined silver production by 2.8 million ounces annually when fully completed in 2017, providing an after-tax internal rate of return of 17% at $16 per ounce silver.

The investment at Dolores should increase silver production by an average of approximately 1.8 million ounces annually, and more importantly, add plus 70,000 ounces of gold annually, while at the same time a significantly reducing our cash operating costs. Even more robust than the La Colorada expansion, the Dolores expansion project provides an after-tax IRR of 26%, at a $17 per ounce silver price, with a payback period of just over two years.

Both projects should generate excellent returns at current silver and gold prices and combined should more than offset the production we will be losing when our highly successful Alamo Dorado mine finally exhausts its mineral reserves over the next couple of years. Together, the two expansion projects will add 9.2 million ounces of annual silver equivalent production for a total capital investment of just over $250 million. In a moment, Steve will provide an update on where we are at with La Colorada and discuss the Dolores expansion in much more detail.

Before turning the call over to Steve, Michael and Rob I wanted to mention that yesterday our Board of Directors approved our second quarterly cash dividend of the year in the amount of $0.05 per common share. The dividend will be payable on or about Tuesday, June 2 to holders of record of common shares as of the close of business on Friday, May 22, 2015.

After careful consideration, our board decided that the prudent course of action was to reduce the dividend by 60% from what we had been paying over the past two years and redirect the funds to the investment and Dolores. Over the construction period, the amount saved by reducing the dividend will almost fund 100% of the capital needed for the Dolores expansion. While not an easy decision, I believe it is the right course of action, particularly during this period of challenging metal prices, to utilize our cash to improve our asset base by investing in good return, low-risk projects, that increase our production and lower our overall unit operating costs.

Now onto Steve for the operations and projects review. Steve?

Thank you, Geoff. As Geoff mentioned, our consolidated first quarter silver and gold production lagged behind our expectations due to some specific mine sequencing differences at our Dolores, Manantial Espejo and even Morococha mines that I will explain in more detail for each case momentarily. With regards to operating cost, I'm encouraged that our consolidated base unit operating costs per tonne performance was better than expected thanks to improved productivities, reduced unit cost on some important reagents and diesel fuel, as well as some favorable movements in the currency exchange rates. These consolidated unit cost per tonne savings were sufficient to offset the production shortfalls and harsh unexpected base metal price reductions to achieve a cash cost per ounce of $11.71 within our full-year guidance range.

At Dolores, stacking and leaching of our higher grade ore was pushed out about a month from original plan into late in the quarter in favor of sustaining some excellent mine productivities we're realizing in one of the phases of the open pit. The effective pushing the higher grade late in the quarter reduces the recovery ratio of ounces produced divided by ounces placed on the heats given the long retention times of our deep leach operation.

The revised mine sequencing will still access all of the ore scheduled for 2015 and we've already essentially caught back up to original anticipated silver and gold production schedules with excellent performances being recorded for April, and so far in May, as we produced on the higher grade ore placed in late Q1. These excellent mine productivities are also allowing us to advance waste movements nearly 10% ahead of our plan, while sustaining overall direct operating cost spending below plan, leading to significant improvements in unit operating cost per tonne, particularly with regards to the mining unit cost.

At Manantial Espejo, waste stripping has lagged behind plan for the about the last six months and caused delays in accessing some of the very high-grade ores in the lower benches of the Maria open pit by about eight weeks from our original 2015 expectations. I'm happy to report that by mid-April, we finally removed the large blocks of waste in the Maria open pit, releasing the high-grade ores as we expected during Q1, while simultaneously sorting out much of the lower open pit equipment availability issues, largely thanks to mobilizing the sizable rental equipment fleet, putting us back nicely on track to achieve our full year, 2015 production expectation.

The Q1 shortfall of the Maria high-grade open pit feed to the mill was made up with low-grade, stockpiled ore, that had been scheduled to be processed later in the year as the mill throughputs are tracking right on plan. As such, we anticipate achieving the annual silver and gold production targets set out in our original guidance. With the recent improvements in the open pit productivity, we still anticipate finishing the mining of the Maria open pit this year, while simultaneously substantially advancing the waste mining of the Concepcion open pit, which together with the underground mining will provide an important ore source for the mill feed during 2016.

Manantial Espejo's unit operating costs per tonne are actually tracking better than expected thanks to reductions in diesel fuel prices and certain reagents and we are currently expect this trend to continue depending somewhat on the difficult to predict local currency devaluation trends. Therefore, we were are maintaining our original annual cost guidance and production projections for the Manantial Espejo operation this year.

At Morococha, a revised mine plan was developed and largely implemented during the last four months to aggressively transition away from some of the economically marginal narrow vein mining areas into the recently discovered larger multi-hundred thousand tonne Esperanza high-grade ore bodies using a newly deployed, highly productive, mechanized open stope with cemented backfill mining method. Our experienced Morococha mining teams have done a remarkable job at getting this new mining method operational in less than a year from the time of discovery of these larger ore bodies.

We expect these high copper grade Esperanza ores will provide almost half of the remaining ore to be milled this year, and can be mined at the lowest mine unit operating cost per tonne of any ores we have available at Morococha, driving our cash cost per ounce back in line with our full-year guidance projections. It's a little too early in the transition of mining to update our annual guidance productions, but I think it's safe to say that we will producing much more copper at Morococha then our original guidance projected anticipated, perhaps with a little less silver and zinc. I will provide an update on Morococha annual projections once our Q2 results are reported and our new forecast is fully developed.

Our other four operations, La Colorada, Alamo Dorado, Huaron and San Vicente, all performed reasonably well, as expected, in the first quarter and we do not expect any significant changes through the remainder of the year that would materially affect our performance relative to our full-year guidance ranges for a production or cost, even considering the possible mine planned adjustments at Morococha. We're realizing some healthy unit operating cost savings virtually across the board compared to what we anticipated. However, these savings were offset by lower byproduct production, except for copper, and reduced base metal prices during the first quarter.

On the capital spending side, we are tracking reasonably well on sustaining capital at our seven operations and expect our project spending rates to increase through the remainder of the year, anticipating coming in line with our original full-year guidance on both accounts before advancing our new Dolores expansion, which I will discuss in more detail momentarily. Before I discuss our exciting Dolores expansion, I'm pleased to report our project teams are now fully engaged on the construction of our La Colorada expansion, where the drilling of our critical pilot hole for the new raise bore shaft is advancing through the challenging ground conditions we knew were present when we started the project. We're employing a cement grouting technique to stabilize the ground as we advance the pilot hole through this critical area and expect to start raise boring the five point meter diameter shaft late in Q2 or early Q3.

Meanwhile, significant advances have been made during the quarter in underground mine development headings necessary to support the expanded production as well as procuring and fabricating the equipment needed for both the mine and plant expansions. Also, we are beginning to identify the preferred routing of our new 115 kV power line with the national power company in Mexico and have broken ground for the construction of the new sulfide processing plant. All in all, I'm pleased with how the project is advancing according to plan and so far within budget.

Meanwhile, we are also advancing the Dolores power line installation, with work initiated on the substations and preparation for setting the power line poles, advancing the project to about 15% completion, tracking on schedule and on budget, expecting the completion of this important project in mid-2016. With that said, I'm even more pleased with the authorization we have been given to develop the underground and pulp agglomeration expansion project at Dolores, largely according to the details released in our preliminary economic assessment report issued last June of 2014. As contemplated last year, we opted to conduct additional studies to further de-risk this attractive project before requesting authorization to move forward.

Metallurgical column leach testing has been ongoing since last year's PEA release and results further substantiate the expected silver and gold recovery improvements on the high-grade ores treated in the pulp agglomeration circuit. In addition, through a combination of enhanced or control methods, mining deeper into more clearly defined mineralized zones and some additional drill results in the deposit, we have seen substantial improvements in our reserve mineral model reconciliations.

Since reporting the results of our reconciliations last May, 2014, our mine ore control results have yielded 3% more tonnes at 3% lower silver grade and happily 2% higher gold grade, yielding no difference in silver ounces and 6% more gold ounces, relative to the tonnes grades and contained metal estimated in our reserve model for the entire period of June 1, 2014, through April 30, 2015. The previous ore control results reported last June were from mining in areas of the deposit higher up in the system where the continuity of mineralization is not as solid as we see deeper in the ore body according to both the results of the deeper exploration drilling, as well as the deepest benches we have mined on the deposit thus far. Overall, this understanding provides us with much more confidence in our ability to mine the more continuous and higher-grade ores deeper in the deposit, which will be segregated and fed to the pulp agglomeration circuit when constructed.

Furthermore, additional resource drilling in the far south extensions of the mineralized system has developed large blocks of underground assessable mineralization that looks very attractive when coupled with the highly productive and cost-effective open stope mining methods we intend to deploy to supplement the open pit high-grade ore release for the pulp agglomeration circuit feed. We have fully mobilized an underground mining crew during Q1, reinforced the mining portal and already have advanced the decline over 110 meters, which is so far largely confirming the excellent ground conditions we expected from the earlier geotechnical drilling studies we conducted. We aim to intersect the south area mineralized zone after advancing the ramp about 1.2 kilometers, which will likely be around this time next year, and we'll begin developing some drifts and prepare some initial test stopes in the solid ground we expect to encounter.

As a bonus to our extended studies on the project, we have been able to incorporate real cost savings being realized for the purchase of critical reagents necessary to run the pulp agglomeration circuit, particularly with regards to sodium cyanide and diesel fuel prices. This added benefit is actually improved the economic rate of return for the project when compared to our PEA results published in June, 2014, even considering the lower long-term silver and gold prices we currently use for our reserves.

Furthermore, waiting to obtain authorization to construct has allowed our project team to focus on fully mobilizing for the La Colorada expansion, before adding the Dolores expansion to their workload. Our project team is now fully capable and ready to take on the second expansion projects simultaneously, particularly given the significant industrial slowdown for new mined developments we are currently witnessing. All in all, we feel incredibly confident with this expansion project and I welcome the opportunity to showcase the talents of our highly experienced and capable project teams who will execute both projects in a safe and highly efficient manner.

To finalize, our operating teams continue to effectively and efficiently address the operational challenges we face. And we've already seen substantial recovery of the production shortfall experienced in Q1 which allows us to confidently reaffirm our original annual production guidance between 25.5 million to 26.5 million ounces of silver and 165,000 to 175,000 ounces of gold within cash cost range of $10.80 to $11.80 per ounce. All the while, defining, mobilizing and advancing construction of our two outstanding organic growth projects. Our Companywide focused on safety, productivity, and quality continues to bolster the Company's mission to be the preeminent primary silver producer in the world.

With that, I will now turn the call over to Michael Steinmann.

Thank you, Steve. Good morning, everybody. We drilled a total 24,200 meters during the first three months of the year. This represents a reduction of about 17% compared to the same period in 2014, but is on track to achieve our annual program of 83,000 meters of drilling. The focus of exploration for 2015 will remain on reserve replacement.

Only a small part of the budget is dedicated to explore early stage projects in Mexico. There is no drilling plan from Alamo Dorado this year, and the Dolores and San Vicente programs will start in Q2.

The largest amount of drilling took place at the La Colorada Mine with 8,787 meters, closely followed by Manantial Espejo, where we completed, between RC and diamond drilling, a total of nearly 8,590 meters. These two mines together received over 70% of the quarterly program and both returned outstanding results during Q1.

But let's start with the drill results for Huaron. I'm sure you remember that we discovered several live mineralized ore bodies during 2014 which are now under development, like Pozo D ore body. The exploration success continued during Q1, extending the wide and high-grade mineralization further to the west.

You should see a long section of the Pozo D ore body on your screen by now with the new drill hole intersect highlighted in blue. The wide mineralization is a combination of the high-grade Pozo D vein and associated dissemination.

Intersections of 16.5 meters, containing 401 grams silver per tonne, 12.2% lead and 17.4% zinc, nearly 14 meters with 245 gram per tonne silver, 3.7% lead and 5.2% zinc, or 10.8 meters containing 173 grams silver, 3.4% lead and 6.6% zinc, are for sure impressive. Up to date, we finalized already 46 drill holes exploring this ore body. Pozo D is currently under development and started production on level 250, contributing currently about 4,300 tonnes per month to the Huaron mill feed.

At La Colorada, we focused during Q1 on the Amolillo and Recompensa veins, located in the Estrella and Recompensa zones. These zones keep returning high-grade intersects, increasing resources found deep and along strike.

I would like to mention a few on start with the Amolillo vein in Estrella, where we drilled 4.8 meters with 587 gram per tonne silver, 2.3% lead and 2.3% zinc, or 1.4 meters containing 1170 gram silver. The other, discovered a split of the main Amolillo vein called Santa Jauna. This vein returned 1,112 gram per tonne silver, 2.2% lead and 3.3% zinc, over an impressive lift of 4.9 meters.

The Recompensa structure runs sub-parallel to Amolillo and NC2 but is located further to the north, or on the right side on the section. The vein contains currently a smaller reserve of 4.6 million ounces of silver along the short strike line.

During the last few quarters, we started to drill deeper and encountered very interesting results. Some of them are [shown] on the following long section. Exploration along the vein returned high-grade intersect like to 2.89 meter containing 904 gram silver, 6.9% lead and 4.5% zinc, or 3.5 meters with 1,900 gram silver, 5.1% lead and the 7.8% zinc.

Although we more than tripled reserves of the Recompensa vein during 2014, there is still a lot of drilling required to further increase the reserves along the structure. But for sure, it has the potential to turn into another major mining zone for La Colorada.

The third of mine I would like to discuss today is Manantial Espejo, as we achieved more than outstanding results at that mine. As mentioned before, we completed 2,260 meters of diamond and over 6,300 meters of RC drilling, for a total of 8,590 meters during Q1.

Exploration focused on the east side of the Maria vein. You should see a long section on your screen by now. Please note on the left-hand side in red color the current Maria open pit and below that some of the underground development. All current reserves are located to the left of the red vertical line.

Drilling took place initially from underground and was expanded further east from surface. Results are more than impressive, like 4.8 meters with 1,354 gram silver and 15.6 gram gold, 1.55 meters with 4,652 gram silver and 36 grams of gold, or 3.8 meters containing 77 grams of silver and 17.6 grams of gold, just to mention three.

The current drilling expanded Maria vein already by about 350 meters to the east. The results are typical for the Bonanza zones of Manantial Espejo, which can add substantial value to the reserves and mine plan along short strike line. We plan to drill an additional 7,000 meters in this area over the coming quarters, which will hopefully expand the reserves at Maria vein by year-end.

In general, all the drill programs are advancing as planned and I'm very happy about the results we achieved at Huaron, La Colorada, Manantial Espejo during the first three months of the year. I'm looking forward to sharing with you additional results in Q2 and Q3. At that time, I will also have an update for you regarding the advances in reserve and resource replacement.

Now to Rob for the financial review.

Good morning, ladies and gentlemen. In a nutshell, our financial results this quarter were heavily influenced by a 15% drop in revenue relative to Q1 2014 as a consequence of selling less metal at lower prices. Revenues were $31.6 million lower than a year ago, which had a major impact on our earnings and cash flow. Let's start by reviewing our cash flows for the period, which provide the clearest perspective on our performance.

For Q1, operating cash flow before interest and taxes was $24 million, which was a $32.1 million reduction from the comparable quarter of 2014. Our operating cash flow was sufficient to fund all of our sustaining capital expenditures which amounted to $17 million and most of our tax payments for the period of $11.2 million.

Cash taxes in Q1 were relatively high due to installment payments based on prior period taxable income and annual payments in Libya. So typically we would expect our cash taxes to be significantly lower through the balance of the year.

We did require our treasury to fund our dividend of $19 million and our growth capital expenditures of $17 million, spent mostly on the expansion of La Colorada and the new power line at Dolores, partially offset by net borrowings, primarily from local lines in Argentina of $5 million. That bought our closing treasury balance, at quarter end, to a strong $292.4 million with total debt of only $65.4 million.

Movements in our consolidated all in sustaining costs per ounce sold from Q1 2014 to Q1 2015 are presented in the table that you should see on your screens now, which breaks down the changes on a mine by mine basis. We calculate an AISCSOS of $14.24 per ounce for Q1, nicely down from the $15.06 the year ago, and well below our guidance for the full 2015 year of between $15.50 and $16.50 per ounce. At a consolidated level, this measure benefited from lower production costs in royalties, favorable NRV adjustments, higher byproduct credits, and lower sustaining capital, but was negatively impacted by the relatively low quantity of silver ounces sold, which forms the denominator to this metric.

We saw major improvements in AISCSOS at Dolores, mostly due to positive NRV adjustments and higher gold byproduct credits, while the opposite occurred at Manantial Espejo, resulting in an increase in AISCSOS at that mine. AISCSOS at Alamo Dorado increased as expected as the mine winds down with low silver production in sales. San Vicente was among the mines that managed to reduce the AISCSOS from a year ago despite low levels of silver sales, primarily as a result of lower royalties.

We present select information from our Q1 income statement on your screens now compared to Q1 2014. As previously mentioned, our revenues in Q1 2015 lagged revenues from a year ago as a negative price variance of $27.3 million combined with a negative quantity variance of $6.1 million, partially offset by lower TCRCs sees on concentrates of $1.7 million.

While we did drawdown on gold inventories at Manantial Espejo and Dolores in Q1 2015, which accounted for the relatively high depreciation charge, we had logistical problems in the shipment of March production at San Vicente resulting in very low levels of revenue recognized from that mine in the quarter. Which is also primarily why royalty costs were down. The net result was that our mine operating earnings declined by $28.9 million from Q1 2014 to $2.6 million.

As Geoff mentioned, we saw Canadian dollar weakness in the early part of the quarter, which was the main driver behind the FX loss of $6.4 million. We have further reduced our CAD holdings and now only approximately 10% of our treasury is in that currency, so we should not see such a large P&L effects in the future.

Our adjusted earnings, after normalizing from mark-to-market movements and other unusual items, declined to negative $19.9 million from $12.8 million in Q1 2014. As shown on the waterfall graph on your screens now, the main factor that caused the deterioration in adjusted earnings from the comparable period was low revenues due to low realized prices and quantities sold. Other factors collectively had very little impact on adjusted earnings with higher depreciation of said by decreased taxes.

The working capital portion of our balance sheet decreased by $34.2 million during the quarter, with working capital at $488.5 million at quarter and. The change in working capital was principally reflected in lower cash and short-term balances previously described and in low inventory balances partially offset by a decline in accounts payable and accrued liabilities. The decline in accounts payable balances related primarily to timing of payments at the La Colorada expansion project and the Dolores power line project.

We recently announced the establishment of a senior secured revolving credit facility with a syndicate of eight lenders. This is a $300 million revolving line of credit that matures in April 2019 and is available for general corporate purposes including acquisitions.

No drawings have been made on the facility to date. We are very pleased to have this source of capital already available for the next four years which, when combined with our excellent balance sheet liquidity, puts us in a very strong position to fund our future growth plans.

With that, back over to Geoff for closing comments.

Thanks, Rob. Let's recap the salient points from our first quarter. We were a bit slow out of the gate in the first quarter with production just over 6 million ounces silver and, as mentioned, 37,500 ounces of gold. We also produced more copper, less zinc and similar quantities of lead.

However, I would like to emphasize one more time there both Manantial Espejo and Dolores, which were the primary drivers behind our slow start, have rebounded exceptionally well and as Steve mentioned, we fully expect to be back on track by midyear. In the case of Dolores, I think we're already there.

We advanced our La Colorada expansion project nicely and have de-risked and decided to proceed with the Dolores expansion project. We remain confident in our ability to deliver on our full-year guidance tor silver, gold and cash cost. And lastly, as Rob just mentioned, we added to our solid financial position with the $300 million revolving credit facility which will provide us with the flexibility execute on our project and business development plans.

Before opening up the line for questions, I wanted to make a few short remarks about the silver market. Last week in New York, the Silver Institute released results from the Gold Fields Mineral Service Thomson Reuters 2014 annual silver survey, which is renowned for its comprehensive look at the global silver market.

I think the supply and demand results leave a lot of room to be optimistic about silver's fundamentals. While global supply increased to 1.06 billion ounces on the back of further mine production, growth offset by a significant reduction in scrap or recycling, global demand was slightly higher than supply at 1.07 billion ounces, with the key demand element showing significant growth. Silver use in photovoltaic cells, used to generate electricity, and jewelry both grew nicely in 2014.

While not huge, 2014 was the second consecutive year that demand has surpassed supply and this occurred during a year when global GDP was relatively modest. In addition, even while investment in the gold ETF was declining, investment in the silver ETFs held their own, even growing slightly, showing once again that silver investors are much more reluctant to sell their holdings.

Projecting forward, it isn't difficult to envision further structural deficits. New buying production is probably close to having peaked with new project spending having been slashed over the past few years and conversely, any sort of increase in global GDP will translate directly into additional industrial demand for silver. In my opinion, the fundamentals look pretty good for silver going forward.

Operator, with that, I'd like to open the call to questions.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

Thank you. The first question is from Ralph Profiti from Credit Suisse. Please go ahead.

Good morning; thanks, operator. I have two questions, both on Dolores. Firstly, is the same cementing agent being used versus the original PEA? And was this part of some of the refined metallurgical testing that you were doing? And do you see this as a particular challenge with respect to binding and permeation as you integrate that circuit? Thanks very much.

Yes, hello, Ralph, this is Steve Busby. We have actually -- in the testing -- have decided to increase our dosage of cement for the agglomeration. We will be agglomerating only the fine component with cement, and will be adding about 30 kilograms per tonne for that agglomeration. And once those agglomerates are produced, they will be mixed together with the low-grade ore from the crushing plant going to the heap.

We're feeling more confident with our ability to maintain what we call the rule of thumb, which is 10 times the solution application rate for the permeability of that material. We do have to likely add a -- we are going to be adding a machine that will bust up the filter cakes coming off the filter plant before we add that cement, to ensure we get a good mix of that cement, because we see that as being a crucial factor. So, those are two changes we made from the PEA.

Okay, great. And sort of a different type of follow-up: You've had some impressive success in Morococha on the mining methods, sounds very similar to what you are taking to the Dolores underground. Can we infer the same thing? And can we easily transfer the unit mining costs with respect to what's it going to cost you to do the underground?

Yes, the interesting thing at Dolores, we're going to be looking at a much higher dip on the mining. So, the stopes will be much, much greater height. The ore bodies that we are mining currently at Morococha -- they're kind of spherical in shape, and are relatively flat dip. They are more of a [mantled] style structure. So, it's a little bit different, I'd say.

And then, the overall operating cost structure -- we generally see, in Mexico, our operating cost structures are lower than we do see in Peru. But relative to productivity per worker shift, productivity per equipment hour, yes, we think we will do as good or even better down at Dolores, just given the ground conditions are so solid there.

That's very helpful. Thanks very much.

Yes.

(Operator Instructions)

The next question is from Craig Johnston from Scotiabank. Please go ahead.

Hi, guys; thanks for taking my call. Just a couple questions around Dolores: First, I guess in terms of timing of capital spend, if any insight you can provide in terms of when that capital spend will take place?

Sure, Craig; this is Steve again. We're anticipating this year getting the commitments on equipment and things, we'll probably spend in the neighborhood of $50 million of the total capital. And then, quite the vast majority of it will be to spend in 2016 thereafter, with maybe a little bit carrying over into 2017.

Okay, great, that's helpful. And then, in terms of production, I saw a snapshot in the presentation of the expectations of production over the next five years. Will there be disclosure around, say, those production estimates and the updates around the economic model?

No, right now, Craig, we don't anticipate material changes to the PEA, apart from the agglomeration techniques that we talked about previously. There really isn't many changes there. We see the mine production schedule being somewhat similar. That production profile that we produced, I think, is reasonably similar to what was in the PEA.

I think, Craig, the real difference is on the cost side. We used a lower pricing deck than we used last June when we released the results of the first PEA. This time, we've incorporated -- as I think Steve mentioned or we put in our press release, we've seen a devaluation of the Mexican peso; we've certainly incorporated that.

We've seen some very nice gains on productivity and, therefore, lower mining cost at Dolores on a current basis, largely attuned to the fact that we've added new trucks there, and we're getting better productivity out of them. A change in reagents -- I don't want to be very specific, but we've had a couple of reagents that have really decreased in price. So, we put those cost savings into the -- essentially the PEA model, and that's what's driven the new economics, and really improved the economics from where we were a year ago.

Okay, great. Thanks, guys; that's it for me.

The next question is from Chris Thompson from Raymond James. Please go ahead.

Good morning, guys, and thanks for taking my questions. I've just got two quick questions here. The first one, I guess, looking at current metal prices, what is your projection as far as timeline to free cash flow, obviously considering what's happening at La Colorada and now Dolores.

Chris, you're asking us for projections of free cash flow, what, over the balance of the year?

Just, when will you become free cash flow positive, if you were to layer in current metal prices, Geoff?

I guess we'll need to see the -- is that before capital? Because we are investing very heavily now in project capital. I'm not sure that there is any mining company out there that actually generates free cash flow after putting in new projects. But if you're asking free cash flow including sustaining capital, I think, as we see La Colorada ramp up in late 2016, I guess when we start putting in the new stopes in, I would expect us to be cash flow positive after sustaining capital -- [at current metal prices] (multiple speakers).

Okay, so, we are looking late 2016, early 2017?

Yes.

Perhaps I could just add to that, Geoff. That's what our long-term cash forecast shows, is that we, as we go through this period of investment, particularly at La Colorada and Dolores, our cash balance does decline through to the end of 2016, where it's at a low point, and then it's really in 2017 where -- when La Colorada kicks in, and we start to accumulate cash.

Okay, perfect. And I guess the next question is: Obviously, we're seeing a cut to the dividend. What sort of triggers do you need to bring back, I guess, the comfort of re-tabling a ramped-up dividend again? What would prompt you to deliver on that?

Well, I think it really comes down, I guess, to the question you just asked. As we see our self going free cash flow positive again, we would look very carefully one more time at bringing the dividend back to the levels we've previously had. That's one, and that would be based on a current price environment.

Part two is obviously, if we see any sort of rally in the price of silver that we view as sustainable, then we would once again have a look at what our cash balances are. And I think we've said this before: One of our fundamental objectives is to try and return value to shareholders directly, not only in capital appreciation hopefully, but also in dividends. So, those, to me, are the two triggers: complete some of our expansion, get the cash flow going, and/or see a rise in the silver and gold price.

Okay. Great. Thanks, Geoff; thanks, guys.

There are no more questions at this time. I will now hand the call back over to Geoff Burns for closing remarks.

All right, thank you very much for joining us this morning, and we very much look forward to talking to you again, probably in early August after we finish our second quarter, and hopefully can deliver on some of the comments we made today on production and operations. Thank you very much.

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