Pan American Silver Corp (PAAS) 2017 Q4 法說會逐字稿

Thank you for standing by.

This is the conference operator.

Welcome to the Pan American Silver Fourth Quarter and Year-end 2017 Results Conference Call.

(Operator Instructions) The conference is being recorded.

I would now like to turn the conference over to Siren Fisekci, Vice President, Investor Relations.

Please go ahead.

Thank you, operator, and welcome everyone to Pan American Silver's Fourth Quarter and Year-end 2017 Conference Call.

We released our results after yesterday's market close and a copy of the press release and presentation slides for today's call are available on our website.

In a few moments, I will turn the call over to Pan American's President and CEO, Michael Steinmann, who will provide some quick highlights of the quarter.

We will then open up the call to questions and answers.

Joining us for the Q&A portion are Pan American's Chief Operating Officer, Steve Busby; Chief Financial Officer, Rob Doyle; Senior Vice President Technical Services and Process Optimization, Martin Wafforn; and Vice President of Business Development and Geology, Chris Emerson.

Before we get started, I'd like to remind everyone that our press release and certain statements and information in this call constitute forward-looking statements and information.

Please review the cautionary statements included in our press release and presentation as well as the risk factors described in our most recent Form 40-F and Annual Information Form.

I will now turn the call over to Michael.

Thank you, Siren.

Welcome everyone joining us today to discuss our Q4 and full year 2017 results.

Pan American posted another strong year in 2017, with revenue of roughly $817 million, up 5% from 2016.

Revenue in the fourth quarter of $226 million was up 19% over Q4 2016.

Earnings in Q4 2017 were impacted by an accounting adjustment for the reversal of certain impairments we booked on our Morococha mine in 2015.

The $60 million impairment reversal contributed to 2017 annual net earnings, which came in at just under $50 million, or $0.32 a share.

Adjusted net earnings in Q4 2017, which excludes the impairment reversal and other adjustments, were $19.2 million, or $0.13 per share.

Annual mine operating earnings were about $169 million, down 15% from 2016.

The decrease was largely driven by a $55 million noncash NRV inventory adjustment variance.

As well, we had higher costs at Manantial Espejo associated with severance payments and wage inflation and at Delores where we see higher costs for the addition of the pulp agglomeration plant at the underground mine.

Cash flow from operations of roughly $225 million was 5% higher than 2016.

We generated enough cash flow in 2017 to fully fund sustaining and project capital, our acquisitions of COSE and Joaquin and the dividend, plus we reduced our debt by $32.7 million and increased our cash and short-term investment balance.

In fact, 2017 was the third strongest year of operating free cash flow, with record cash flows at La Colorada, Delores, Huaron and Morococha.

As of December 31, 2017, our cash and short-term investment balance was $228 million, an increase of $41 million over Q3 2017.

We have $10.6 million of debt outstanding, mostly related to financed lease liabilities.

Yesterday the Board declared a 40% increase in the quarterly dividend, to $0.035 per share.

The increase is consistent with our approach of enabling shareholders to participate in the cash flow generation of the company through dividends.

Based on our strong financial position and diversified portfolio of cash-generating assets, we are able to return dividends to shareholders while pursuing new opportunities for growth.

Turning now to consolidated operating results, we produced 6.6 million ounces of silver in Q4 2017, bringing total annual silver production to 25 million ounces.

2017 production was essentially flat with 2016 after ramp-up from La Colorada and Delores offset the production lost from the completion of mining at Alamo Dorado.

Silver production was in line with the original guidance we issued in January 2017.

Gold production in Q4 of 2017 was 43,700 ounces, bringing annual gold production to 160,000 ounces, also in line with original guidance.

As expected, gold production was down from the roughly 184,000 ounces produced in 2016 due to the conclusion of operations at Alamo Dorado and planned lower grades at Delores.

Zinc and lead production reached record levels, while copper production beat our original guidance.

Cash costs in Q4 2017 came in at $3.18 per ounce.

Full year 2017 cash costs were at a decade-low of $4.55 per ounce, well below our original guidance.

Similarly, all-in sustaining costs came in getter than expected at $10.79 for the year.

Q4 2017 all-in sustaining costs of $10.86 include negative and readjustments of $0.83 per ounce.

Mine operating results were highlighted by the impressive throughput at La Colorada during the second half of the year.

In Q4 2017 La Colorado produced 1.9 million ounces of silver at cash costs of $0.43 per ounce.

Full year production was about 7.1 million ounces at cash costs of $2.08 per ounce.

Zinc and lead production were up 35% and 47%, respectively, over 2016.

We are also beginning to see production ramp up at Delores.

Q4 2017 silver production of 1.3 million ounces was up 40% over the same period in 2016.

And cash costs came in at negative $3.93 per ounce.

We are continuing with commissioning activities on the pulp agglomeration plant to bring processing rates to the design of 5,600 tonnes per day.

The increase in Q4 production costs reflect in part the cost additions from the new pulp agglomeration plant and addition of the underground mine where we completed a total of 4,720 meters of development in 2017.

In Peru, our Morococha and Huaron mines posted their strongest operating free cash flow years on record due to improved productivity from the mine mechanization.

Silver production at Morococha in Q4 was up 25% over Q4 2016, with cash costs of negative $7.42 per ounce, while Huaron produced 950,000 ounces at a cash cost of $2.08 per ounce.

As expected, San Vicente mined some higher grades during Q4, producing 1.1 million ounces of silver at a cash cost of $9.04 per ounce.

While developing to deeper levels on the main Union structure we encountered lower silver grades than expected.

Stoping at these grade levels will continue during the first 6 months of 2018, after which we expect to move back into higher grades for the remainder of the year to reach our projected production for 2018.

Development of the COSE underground mine is proceeding well, with 184 meters advanced on the underground decline in Q4 2017.

And we filed a technical report on the Joaquin property in January, which is available on SEDAR and on our website.

Capital expenditures in 2017 totaled $145 million compared with just under $200 million in 2016.

The reduction reflects lower project capital spending with the La Colorada expansion largely finalized at the end of 2016, and the Delores mine expansion completed at the end of 2017.

Sustaining capital expenditures of $84.4 million were in line with our guidance.

Last night we released our year-end reserves.

We more than replaced several reserves, ending 2017 with approximately 288 million ounces of silver and 1.9 million ounces of gold.

We also recorded an increase in the reserve silver grade of 13% due in part to the high-grade additions from our Joaquin and COSE properties in Argentina.

The major addition in silver reserves came from our Peruvian mines and Joaquin and COSE, while La Colorada fully replaced the reserves depleted during mining.

Inferred silver resources increased by 10 million ounces, all attributable to La Colorada.

We reduced our gold resources by 800,000 ounces, mostly due to the sale of the Calcatreu property in 2017.

During 2018 we are planning to invest approximately [$19 million] in exploration drilling directed towards 89 kilometers of mine and near site exploration and approximately 26 kilometers of selective regional exploration targets.

Our guidance for 2018 and our 3-year outlook has not changed from the information we provided in January.

We are expecting to produce 25 million to 26.5 million ounces of silver in 2018 at cash costs between $3.60 and $4.60 per ounce.

We expect all-in sustaining costs to between $9.30 and $10.80 per ounce.

Sustaining capital is estimated to be between $100 million to $105 million in 2018, including investments in the tailings storage facility at La Colorada, which is expected to result in about $15 million in cost savings over the life of mine.

2018 sustaining capital also reflects waste prestripping activities at Delores, which will decline significantly beginning 2020.

Our 3-year outlook has silver production growing to 30.5 million to 33 million ounces, with cash costs of between $4.75 and $6.75 an ounce in 2020.

All-in sustaining costs in 2020 are expected to be $8.50 to $11 per ounce.

That outlook positions us as a growing silver producer, with further improving operating margins as we completed our 2 mine expansions during the low part of the metal price cycle, allowing us to take advantage of this added economy of scale.

That concludes my formal remarks.

Please, operator, could you open the call for questions?

(Operator Instructions) Our first question comes from Cosmos Chiu of CIBC.

Congratulations on a very strong 2017 and a record low cost.

Maybe a few questions from me here.

First off, on Delores and also maybe La Colorada, maybe more a question for Steve.

Previously there had been some issues at Delores with the filter cloths at the pulp agglomeration plant.

And at La Colorada there was a bit of a shortfall in terms of sand fill.

Have you made any progress on those 2 issues?

Thanks for the question.

This is Steve.

Yes, regards to the filter cloths at Delores, during Q4 we did run out of supply of filter cloths during November and December specifically, which affected our throughput through the plant and our commissioning of that plant.

We were able to get additional supply cloths in place by the end of the year.

We have a pretty good supply on hand now, moving into the new year.

We're back up getting pretty good throughputs on our commissioning today.

We have noticed that these cloths that we've been using are not of the highest quality -- not the highest durability, I'll put it that way -- of the cloths available.

So we are testing some clothes that are more durable that hopefully we can get a little bit longer life on.

But the cloths problems that we did experience in Q4 are behind us now and we're back on full commissioning trying to bring these filters up to the full 5,600 tonne per day capacity.

I will add that we have decided to procure and install some expansion kits on these filters, which should give us about 10% additional capacity.

We don't have to change the physical layout of the filters.

They've got enough width within the filter that we can add these additional plates.

We're hoping to do that project around April, maybe into May.

And once those are in place we're hoping that we'll get about a 10% boost of production with those, just as an added contingency to make sure we can get up to the throughputs.

Relative to La Colorada, we did find during 2017, as I reported, as we started to increase throughputs we did realize that we didn't have adequate amount of fills to allow us efficient backfill cycles and an efficient cycling of the underground mining sequencing.

And we do have available to us what we call a sand-fill plant on the surface where we take tailings from the sulfide plant and we separate the sand fraction of those tails and we can put them back underground.

We're upgrading that circuit to give us more efficient distribution of those sands and getting them into the key stopes and specifically the high-grade stopes of the lower deep Candelaria portion, which will get the grades back up.

We're hoping to have most of that sand-fill plant kind of in place and running efficiently into Q2 towards the middle part of this year.

Meanwhile we're getting the tonnage.

It's just a matter of location within the mine where we get the tonnage.

And we've got to stay close to our developments.

Otherwise we've got these really long cycles of waste trying to get waste fill back into the high-grade portions of the mine.

So this will really help us as we get into the middle part to the latter part of this year.

Of course.

And then maybe on grade, in your reserve resource statement yesterday I was quite happy to see that the Delores grade increased for -- looking at the proven here, I guess the gold grade increased to 30 gram per ton- -- or the silver went up to 30 gram per tonne, the gold went to 0.93 gram per tonne, which is not a insignificant increase.

Good to see.

Could you maybe talk a bit more about that?

Cosmos, it's Martin here.

The grade increases are primarily related to the low-grade stockpile that we took a portion of the low-grade stockpile out of the reserves.

It's very marginal in terms of adding economic benefit.

So what happened last year is that our processing costs incremented up slightly, which knocked out some of the low-grade stockpile and some of the very marginal material, in situ material, within the pit.

So taking that material out had the impact of increasing the grade.

And you see that the tonnes went down as well because of that.

Yes.

But I guess the most important part is it looks like the ounces didn't go down.

Exactly -- well, not by much, by depletion mostly, and there were some gains that we had as we were mining during the year as well.

Yes.

Okay.

And then maybe one last question on the earnings here.

I guess earnings somewhat missed consensus estimates, mostly due to a higher noncash tax rate.

It was 52% on Q4.

Rob, I remember there's a cycle in terms of the taxes and when it would get accrued and when it will get paid.

Is that the reason why?

And could you remind us again how that works?

Sure, Cosmos.

You're right that there was a large noncash component to our tax expense in Q4, mostly related to how the FX flows through our provisional deferred tax provision.

In addition to that, we did have very high withholding tax payments during Q4 related to some repatriation of intercompany funds, which triggered some withholding tax on interest and dividends.

So those are really the 2 main drivers behind the slightly elevated tax rate for the quarter, coming in a little bit above 40%.

For the year the tax rate of around -- effective tax rate of around 32% is more reflective of where we expect to be in the longer term.

Cosmos, like every year obviously we will see the biggest cash tax or outflow on our cash will be mostly first quarter and the early second quarter.

That's right, the way that the tax payments work in each of the countries we work in it's -- and Q1 is really where we play catch-up from the year before.

So we do expect Q1 and a little bit of Q2 to be more intensive from a cash tax point of view.

Our next question comes from Chris Terry of Deutsche Bank.

I have a couple questions, mainly related to costs and then one on the operations as well.

On some of the other calls for other companies we've had that have reported already, we've had some mention of some inflation creeping back into the costs on the consumable side and just various other creeps on the cost side.

When you look at your 2018 guidance versus 2017 on cash costs and then '19 and 2020, you've obviously given your assumptions around the peso and the various currencies there.

But what have you assumed, or what are you observing on the cost side, and how do you think about maybe conservatism or where that outlook goes against maybe the broader macro conditions.

This is Steve.

Good question.

And we're in a pretty unique situation because we're just coming off of our 2 major expansions in Mexico, as you know, which bringing us some economies of scaled with higher volumes.

So that gives us a really good edge, if you will, in terms of combating potential cost escalations and inflations.

So we're feeling pretty good.

And during the second half of 2017 we did have some unusual costs that came into our books relative to decommissioning of the open pit at Manantial.

We did have some severance payments and things had come through that were kind of one-offs.

And we are still in a real significant commissioning at Delores and some of the sand-fill plant at La Colorada.

So we're absorbing some commissioning startup costs that will go away as this thing smoothes out and then we capture that real economies of scale moving into 2018 with these expansions.

With that said, we are keeping a very close eye on cost increases.

And we are seeing, as everybody sees in the world, energy prices are moving north.

We are seeing wage pressures.

Wage pressures are moving higher.

In our jurisdictions that we operate in, we're forecasting, with the exception of Argentina, fairly flat exchange ratios for the currencies.

So we're seeing some wage pressures that are kind of matching the inflation pressures that we're seeing in those jurisdictions.

So we're monitoring that real closely and we'll keep a close eye on it.

We think we've made a pretty good projection going into 2018 that we can stand behind as we move through our wage negotiations and supply negotiations for our materials.

So today we feel pretty confident with the costs that we projected out.

Okay, Steve.

And for 2018, I mean when you look at prior years you've usually done a good job at reassessing the costs as you go through the year and usually beating those.

So you're saying $3.60 to $4.60 an ounce that you've guided towards, that's the fair assessment.

But is there a chance if things go well that you'll again look to be at the lower end of that or upgrade that as the year goes on?

Or is that -- how conservative is that estimate I guess is what I'm trying to say.

No, I think it's a realistic estimate, Chris.

I think the potential upside to that is going to hover around our byproduct metal pricing.

We think there may be some upsides there.

But I think relative to our base costs, I think those are realistic estimates.

Okay.

And perhaps another one for you, Steve, just on the operations.

Can you just talk a little bit about -- I know sometimes you gave some commentary on the quarter-by-quarter progression.

Can you just talk a little bit about that side, how you see 2018 shaping up, some of the puts and takes on some of the operations, just some things to look out for either in 1Q or further on in the year?

I think Michael mentioned a couple things first half on second half, but if you've got any comments on things we should be looking out for in the quarterly progression during the year.

Sure.

And Michael did reference a couple of them.

But certainly in the case of San Vicente we've had to ramp down to the bottom of our main high-grade structure, Union.

At the bottom of that structure it's still pretty good grades, but it's not the super high grades that we see higher up in the structure.

So we'll be mining in that lower part of the structure that's lower grade during the first probably half of the year, moving up into the higher grades in the second half.

So definitely backend loaded at San Vicente on production.

Delores likewise -- we're in this commissioning into this pulp agglomeration plant and these filters.

We haven't achieved the tonnage we want to see through that filter plant yet.

We are getting overall tonnage of 20,000 tonnes a day to the heap.

So the impact isn't as significant as you might think.

But we will kind of see not a significant backend loading at Delores, but we will see a backend loading at Delores as well for that reason.

And then at La Colorada we were talking about the backfill plant.

And once we get that distribution network in place in the mine, that will allow us more efficiency in terms of mining in the high-grade zone that we haven't been able to mine at a consistent efficient rate since the expansion work has been completed.

So again, that's going to push higher-grades probably off into the latter part of the year.

So those I think are the 3 most significant.

Apart from those I think we're fairly level through the year.

Okay.

Appreciate it, Steve.

And maybe one for Michael, the last question.

Just given the balance sheet strength, what are you thinking in terms of I guess companies are still -- at this stage the balance sheet for most other companies have been repaired and they're starting to think about what their dividend policies may be, some sort of variable component and then a base load component.

You've obviously lifted that dividend recently.

But how do you think about weighing that off against your organic profile in the next year or so?

What sort of return metrics are you looking at?

Yes.

Well, our balance sheet is in incredible state, has been already for quite a few years and it's getting better obviously by the month.

Look at the results from 2017.

It's the best proof of that, of the strong increase in our cash on hand and short-term investment.

Even though we had fairly significant capital expenditures last year on the expansions, purchased projects and repaid basically all of our debt.

So really good shape and, as I mentioned in the call, that was the reason for the 40% increase that the board decided yesterday on our dividend.

So just an increase that happened yesterday.

The board is always looking at the dividend.

As you know, we're paying dividend since 2010.

We like very much that our shareholders can participate in our strong cash flow generation.

And on top of it, it induces a lot of discipline in the management team to have a dividend that is kind of a part of our business, how we see it, and pay that out in a constant way.

So the board will look at this dividend very hard obviously during the years.

There's a lot to weigh in, not only our cash flow generation but there is expansion opportunities, maybe other ones that come along that approach us in Argentina, COSE and Joaquin.

And they -- any other opportunities, further growth opportunities have to be weighed in here.

In general obviously adding accretive projects is the best return for our shareholders.

But we're very happy that we are able to return cash through dividend to our shareholders in a constant way.

Our next question comes from Dalton Baretto of Canaccord Genuity.

Michael, I'd like to pick up on the last part of your answer to Chris there, and talk a little bit about growth and capital allocation.

And I guess my first question is, outside of Joaquin and COSE, do you see -- are you studying any other potential organic growth opportunities at your assets right now, expansions and such?

You know us and you know that we always look for opportunities.

I think there's a little one that I mentioned there that is the change of the tailings facilities, changeover from the sulfides and the oxides at La Colorada, which is small capital and a pretty nice return on that project of $15 million over the life of mine.

So we're constantly looking at additional opportunities to save money, to increase return at all our operations.

Obviously the big step functions that we took at Delores and La Colorada, we don't see them right now in Mexico.

We just have them behind us.

So bringing them up to full speed is first priority.

Obviously the throughput of the pulp agglomeration, which improved a lot and I have no doubt that we will reach what we plan there and La Colorada with the backfill.

I think we have seen just a glimpse right now what this mine is able to do with only really the second half of the year having available with the full expansion of La Colorada and already producing 7.1 million ounces for 2017 at a very low cash cost.

So that's just the beginning I think what this mine is able to do.

I think there's a lot of improvements we can look at.

San Vicente of course we're looking at further mechanization.

As you note there, we had some issues at San Vicente during the year.

Some were grade driven, some were driven by the mining methodology I would say, which created some cost pressures.

And looking at further mechanization like we did in Peru obviously should have kind of a hopefully similar impact at San Vicente.

So we look at that.

So call it on the tag on our brownfield side, there's a constant lookout for opportunity.

And you will see more coming through, but although right now I don't see like one in the size of La Colorada just around the corner.

Understood.

Okay.

So then given where your balance is at, is there more pressure, let's say, internally to do something transformational in terms of acquisition?

Are you happy with bolt-on acquisitions?

And if you do something transformational, how much are you willing to risk your balance sheet to do that?

Dalton, there is never pressure to do an acquisition.

If you look at our history back, we are very careful in doing acquisitions.

They're far apart.

They have to be accretive and absolutely forward growth.

Obviously I like growth.

I like to deliver growth to our shareholders just beyond what we are able to do with our incredible asset base.

And if they're accretive, by all means, for sure we have the technical and financial ability to tackle probably every silver project there is out there in the world.

But we have to see an accretive way forward for our shareholders to do so.

Looking at the balance sheet, Dalton, as you see, we have literally no debt.

We have around $227 million cash or short-term investment available.

We have an undrawn credit facility of $300 million, no debt.

So that's sufficient firepower available there and for any kind of possible acquisition you could think of.

Right.

Okay.

And then maybe just one last one.

Outside of valuation and implied accretion, can you remind me what are some of your key criteria as you're looking around for assets?

That's an interesting question, and there's not a simple answer to it.

Sure, I would like to tell you sure it's 15-plus percent.

But all depends what metal prices you plug in in your model and long-term assumptions.

So with that we kind of create very easily a higher or lower return.

So it all depends on where it's located, which jurisdiction, how close this project or additions would be located to some of our current assets.

That dictates the size that we are looking for.

Obviously if it's in a new jurisdiction it has to be much larger than if it's just a tag-on.

I think COSE and Joaquin are very good examples that we can look at very small projects if they're just in trucking distance to one of our operations.

So unfortunately I don't have just a straight answer for you.

I like the sound of 15-plus-percent, but, as I said, you have to be very careful when you do your analysis and not just plug in very high metal prices and kind of create that return.

So we are very careful with that.

Okay, and then just maybe one last one.

Is your preference for a big greenfield or do you want something producing?

Again, this is -- depends what is available, what comes up and what we like.

I mean, you saw that we made a fair-sized investment in New Pacific in Bolivia in December, having an opportunity -- I think right now we're owning about 13% of the company and we are holding a board seat.

And we have the opportunity to go all the way up to about 18%.

A very interesting, high quality project there, which [it has quite some] drilling.

I would encourage you to have a look on the New Pacific website.

They are very capable geologists of that project, obviously run that project.

We have a long experience in Bolivia.

And if you look at the (inaudible) grades of those first drill holes there you'll understand what I mean.

So again, we are a mine builder, mine operator.

We can tackle a project from exploration stage to feasibility and building.

As you know, we are not a greenfield explorer, so we normally take on properties that have at least some resources already, high quality drill holes on it.

You probably won't see very, very early stage greenfield exploration from us.

But everything else is fair game if it's of high quality.

Our next question comes from Lawson Winder of Bank of America Merrill Lynch.

Maybe just start for me on the San Vicente, the reserves.

You mentioned a geological reinterpretation of the Union vein there.

Maybe you could just elaborate a bit on what you were seeing there.

What was driving that?

Was it dilution continuity or is there something else going on there?

Sure, Lawson.

It's Chris.

Yes, it's a fair question.

Obviously we took a bit of a hit at San Vicente, obviously through depletion of mining as well, as you mentioned, a reinterpretation.

As we've gone in lower down in the Union vein we've seen a change in the mineralogy.

It is getting slightly tighter, as we've described, through the experiences of mining in San Vicente.

So actually going into these blocks with development, we're actually seeing the structure in the hands and seeing a slight change in the mineralogy.

Yes, we've seen those, not plus-kilo samples, but we're getting 0.5 a kilo so, yes, a hit but still nice.

And hopefully more drilling at depths.

We've obviously got to tighten up the drilling slightly so we can get a better handle on how this goes down.

But having said that, we're still drilling (inaudible).

We had some great results there, and a new vein just off the -- 200 meters from Union, the [Yacena] vein.

So still upside.

But yes, it was a slight hit this year that we just had to take.

Okay.

And then just on Mexico, coming back to kind of the whole theme on cost creep, just curious -- I don't think I've heard you comment at all on the deregulation in the Mexico oil market.

Maybe you could just comment on how that's impacted you through 2017 and how you see it going forward, whether -- sort of like concepts that you might have for dealing with that.

Yes, very interesting question, Lawson.

One of the big benefits that we brought to our operations in Mexico over the last couple of years was this tap into the national grid power supply at Delores, where previously we were running generators, diesel generators.

We had significant cost savings by making that tap and we're enjoying those cost savings now.

And what's interesting is when we looked at that and then we saw -- we advanced that project back when oil prices were above $80, $90 a barrel.

And oil prices, as you know, fell down below even $50 a barrel.

We thought, "Wow, that's going to put some pressure on that decision." But in fact, with the Mexican economy the oil prices actually affect -- there's a provision in the contracts for industrial power supply.

So lower oil prices actually brings lower power costs as well.

So we did actually enjoy the benefits we expected there.

And it's took a lot of the pressure off the operation of trying to -- you can imagine trying to get as much diesel fuel up to the mountains of the Sierra Madres that we had to do when we ran those generators.

So we were really happy with that change that we made.

It took the pressure off.

With that said, we still use quite a bit of diesel fuel because of the large open pit mine and the large waste stripping, prestripping that we're doing at that mine.

So we do monitor that pretty closely.

I do believe long term as we see the competition, the open market, if you will, for energy supply in Mexico, I think we're going to see some benefits.

We're seeing some of that in Peru today with the open competition for energy.

We're seeing incredibly low energy costs down there today.

So we're hoping to see the same.

But I think it will take many years to develop.

I don't think that's something we'll see in the short term.

It will gradually change over the next probably 5 years or so.

But I think it's going to change in favor of the consumers like ourselves.

(Operator Instructions) Our next question comes from Mark Magarian of UBS.

Just following up on the question earlier regarding sort of growth opportunities, what's the latest with Navidad?

Is that just stuck in a holding pattern or is there any further developments that might bring that a little bit closer to fruition?

Sure.

As everybody knows, I guess, on this call, Navidad, one of the best and largest undeveloped silver deposits, located in the Province of Chubut in Argentina.

We're holding the project already for many years due to a law that prohibits open pit mining and the use of cyanide in the Province of Chubut.

This is a sulfide project, so flotation.

But it is -- so we wouldn't need cyanide really.

But we need the open pit mining for that project.

In general, we have seen very positive changes in Argentina over the last, what is it now, 12, 13, 14 months with the new administration.

Obviously one of the reasons why we decided to add the projects COSE and Joaquin to our portfolio because we have seen a lot of positive changes down there.

Giving you a bit more details on Chubut because a lot of things are moving there as well and are in discussion.

There was actually like a public meeting held yesterday in the Town of Telsen in the Province of Chubut.

The Argentine Federal Minister of Energy and Mines, Mr. Aranguren, was leading that meeting, together with many political and business and stakeholders from the province with the aim of starting the debate relating the responsible mining activities in the province.

And in general I just want to make very clear that we are very respectful obviously of this important political and democratic process and welcome any open and honest discussion on the issue.

Navidad would create many stable and long-term jobs in the province and would be an important source of income and economic development for the entire region.

So Pan American, as you know and you've seen from the results, we have absolutely the technical knowhow and the financial strength to build and operate Navidad to the highest environmental standards and provide sustainable development to the Province of Chubut, as we do in many other of our operations in the Americas.

So as I said, it's a decision in the province.

It's a decision in Chubut.

And we just have to wait.

But as you know, from the technical point of view, it's an incredible project.

(Operator Instructions) We currently have no callers in the queue for questions.

I would like to turn the call back over to Mr. Steinmann for any closing remarks.

Thank you, everyone, for calling in today.

Looking forward to talk to you in May to discuss the Q1 2018 results.

Have a good rest of the winter.

Thank you very much.

This concludes today's conference call.

You may disconnect your lines.

Thank you for participating and have a pleasant day.