Pan American Silver Corp (PAAS) 2018 Q3 法說會逐字稿

Thank you for standing by.

This is the conference operator.

Welcome to the Pan American Silver's Third Quarter 2018 Results Conference Call.

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)

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

Please go ahead, Ms. Fisekci.

Thank you, operator and welcome everyone to Pan American Silver's third quarter 2018 conference call.

We released our results after yesterday's market close and a copy of the news 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 a brief review of our results.

We will then open 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 VP Project Development ; George Greer, Senior VP Technical Services and Process Optimization; Martin Wafforn and VP of Business Development and Geology, Chris Emerson.

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

Please review the cautionary statements included in our news 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 results for the third quarter of 2018.

Operations performed well over the past quarter with production up for all metals, except copper and on track to achieve our annual production guidance.

We are also on track to achieve our guidance for cash costs and all-in sustaining costs which we previously lowered on August 8th from the original guidance.

The significant decline in metal prices over the quarter had a strong effect on our Q3 revenue, which came in at $187.7 million.

Our operations generated $41.7 million of cash in the quarter but negative settlement adjustment on concentrates of $9.8 million a noncash negative NRV adjustments of $23.4 million impacted the financial results.

This resulted in a net loss for the quarter of $9.2 million or a basic loss per share of $0.06.

The adjusted loss was $4.7 million or $0.03 per share as we are only adjusting out the portion of the NRVs.

In addition to the impact of lower metal prices, high depreciation and amortization from the increased production and capital base attributable to the La Colorada and Dolores expansions impacted earnings in the period.

Operating cash flow before working capital changes, interest and taxes of $50 million was more than sufficient to fund sustaining and project capital, taxes and dividends, resulting in a $2.4 million increase of our treasury at the end of Q3, 2018.

As of September 30, 2018 our cash and short-term investment balance was $252.7 million, total debt was $8.4 million, related entirely to finance lease liabilities.

Total available liquidity including our undrawn $300 million credit facility was about $553 million.

We produced 6.3 million ounces of silver and 42,100 ounces of gold in Q3.

Zinc production was 16,700 tonnes benefiting from higher grades at Morococha and San Vicente from mine sequencing and tied throughput at La Colorada.

Lead production was 5,700 tonnes, copper production was 2,600 tonnes and reflects the lower copper grades we were anticipating at both of our mines in Peru.

Consolidated cash cost of $5.24 in Q3 reflect lower by-product credits from the decline in base metal prices.

All-in sustaining costs were $13.73 excluding the impact of negative NRV adjustments, all-in sustaining costs were $10.05.

Our cash costs and all-in sustaining costs for the first 9 months of the year came in at $2.45 and $9.21 respectively.

Well within our annual guidance.

Turning now to the performance of each of our mines.

At La Colorada, we set a record for tonnes mined and processed, silver recovery, silver production and zinc production.

In Q3, we produced a new quarterly record of just over 2 million ounces of silver at cash costs of $3.50 and all-in sustaining costs at $6.27.

On October 23, we announced a major discovery at La Colorada with substantial polymetallic skarn mineralization over up to 223 meter intervals.

These are exceptional results.

The 3D image on Slide 10 shows the location of the drilling below the 498 and 528 mining levels in the Candelaria mine.

With over 6,000 meters drilled, the footprint currently covers 400 by 200 meter area.

The 3 longest holes hand drilled mineralization and larger drilling equipment has now been deployed, so we can drill deeper.

Slide 11 shows the skarn mineralization comprised of coarse sphalerite Galena and Chalcopyrite within a classic skarn mineral assemblage.

Skarn mineralization starts around level 800 and continues down to the 1200 level as seen in hole U-39-18.

The mineralization is open in all directions.

We expect to be able to provide a first resource estimate later in 2019 and we'll continue to keep you appraised of the development.

At Dolores, we produced 967,000 ounces of silver and 33,100 ounces of gold.

Production was impacted by the re-sequencing of the mine plan following the suspension of mining activities in June and seasonal heavy rains affecting access to certain ore zones.

Improved recoveries from the pulp agglomeration plant helped offset some of that impact.

Post the end of the quarter, we have installed 2 of the 3 expansion kits in the pulp agglomeration plant and you are pleased to see nameplate throughputs on most of the days.

We will be able to provide a better update on performance and rates with our Q4 results.

Cash costs were $1 per ounce impacted by greater waste mining due to the re-sequencing of the mine plan.

All-in sustaining costs of $25.52 reflect the significant impact of negative noncash NRV inventory adjustments.

Excluding NRV inventory adjustments all-in sustaining costs at Dolores were $8.36.

Sustaining capital expenditures were also higher in the quarter, mostly due to higher pre-stripping rates to catch up from the suspension of mining activities in June.

Work on leach pad expansion has fully resumed after the rainy season.

And we are building enough capacity to support anticipated production levels.

We expect to complete this phase of work early next year.

While planning for the next phase to begin late in 2019.

We have also successfully demobilized the prime underground contractor at Dolores.

We are currently mobilizing our own crews together with the secondary contractor who is primarily providing drilling support.

The team is currently preparing stopes for mining to commence during the fourth quarter.

Moving onto Peru, our Huaron mine, set the quarterly record for tonnes mined and processed resulting in 922,000 ounces of silver produced at cash costs of $3.25 per ounce.

Mine sequencing to more leads rich zones resulted in an increase of lead production and a decrease in zinc and copper production.

The decrease in zinc and copper production combined with lower base metal prices contributed to higher cash costs and all-in sustaining costs of $11.07 which were also impacted by an increase in sustaining capital related to primarily to the tailings storage facility raise and mine deepening project.

The mine deepening which will access the continuation of the veins 80 meters below the deepest current mine level is advancing very well.

We anticipate increased production rate from these levels as we move into 2019.

Our Morococha mine, posted record silver and zinc production in the quarter.

We produced 758,000 ounces of silver at cash cost of negative $0.65 in Q3.

All-in sustaining costs were $4.52.

We continue to see mine sequencing into led zinc rich zone with less copper production.

Our San Vicente mine in Bolivia produced 867,000 ounces of silver at a cash cost of $11.14 and all-in sustaining costs of $11.11.

Whether ore control is resulting in improved grades and reduced mining dilution, silver zinc and copper production were all higher while lead production declined.

Our initial transitioning to more mechanized mining methods impacted throughput over the past quarter and contributed to higher direct unit operating costs.

However, we are pleased with the progress and remain confident that our effort will result in improved performance over the time.

At Manantial Espejo in Argentina, we produced 718,000 ounces of silver at cash costs of $16.50 per ounce and all-in sustaining costs of $24.78.

All-in sustaining costs were impacted by negative NRV inventory adjustments, which increased cost by $8.81 per ounce in the quarter.

Costs were also impacted by lower byproduct credits from lower gold production and prices.

The devaluation in the Argentine peso and the termination of open pit mining helped partially offset the increase in costs from lower byproduct credits.

We expect the economics of this mine will improve once COSE and Joaquin come online next year.

The COSE and Joaquin projects in Argentina are progressing on budget.

As we mentioned on the Q2 call, we encountered difficult ground conditions during the decline development at Joaquin.

[The ramp personnel] successfully passed through this difficult conditions.

But completion of the project may be delayed by a couple of month as a result.

The COSE project remains on budget and on schedule.

You're maintaining our guidance for 2018.

On August 8, we reduced our guidance for cash costs, all-in sustaining costs and copper production.

Those revised cost estimates reflect lower base metal prices for the second half of the year.

Based on results achieved during the 9-month period, we are on track to achieve our guidance.

We are maintaining our estimates for sustaining capital and have reduced our estimate for project capital by $10 million based on timing of expenditures.

Our operations are continuing to generate strong cash flow and we remain in very strong financial position.

This allows us to take advantage of growth opportunities.

Our discovery at La Colorada confirms we are able to achieve this organically.

But the current metal price environment should present external opportunities as well.

And with that, I would like to open the call for questions.

Certainly, we will now begin the question-and-answer session.

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

My first question is for Rob.

Looking at this NRV adjustment here, I must say this is some of the most complicated and somewhat annoying accounting I have ever encountered.

In the press release, Rob, you talk about the NRV adjustment being $23.4 million but in the adjusted earnings section, you only add back $11.76 million.

So I'm just trying to reconcile those two.

And then on top of that, my follow-up question would be, is there any way they can actually hedge away the -- this adjustment here either through some kind of hedge on your provisional pricing or any other type of hedge accounting, just, it's been so disruptive to your earnings quarter-over-quarter?

Yes, Cosmos.

I certainly share your sentiment there.

Couple of comments on the NRVs.

Firstly, your question around what portion of the NRVs that we adjust that of adjusted earnings.

What you've identified there the $11 million odd that we add back to adjusted earnings reflects the NRV that we calculate on the Dolores heap.

[Rates] to the NRVs, we don't adjust that.

And that's really a decision that goes back several years that we decided to only take up the NRVs related to the heap because of the very long-term nature of that inventory.

So that's more akin to let's say an impairment of a long-term asset.

So that's really just a decision that we made, and we've just stayed consistent with that.

Many other companies will adjust out their full NRVs out of adjusted earnings.

We just leave it at the heap.

You know the NRVs in this particular period were higher than just simply the drop in price, particularly in Argentina.

You see at Manantial Espejo, we incurred about $7.1 million NRV on the inventory at that mine and a big part of that, about $5 million of that actually related to the recently enacted export tax that when we factor that into our calculations increases the cost basis of our inventory and therefore pushes us into an NRV situation.

So while that wasn't reflective of Q3 because that inventory is going to be sold over the next number of years.

The accounting forces you to take effectively a mark-to-market right away.

So that's -- that was one particular factor in addition to obviously the drop in the metal prices that caused that.

Now as to hedging it out.

I had left.

He has some ideas on that.

I don't think there is a way because, really at the end of the day, aside from I guess really hedging our primary production of silver and gold, which is not going to happen.

So this is just the variability that we live within the commodity markets.

It's just -- Cosmos, this is Michael.

Obviously in effect here of dropping -- fastly dropping metal prices, metal prices, our metal prices come back that turns -- turns around the other way.

So it's just obviously an accounting treatment.

Is a picture at one time of noncash adjustments that we deal within the accounting bar.

I know what you mean.

And I don't like to see these adjustments go through and have an impact on your share price, and that's sort of what has happened today and it's hard for you to calculate these numbers, it's even harder for us to kind of guesstimate what these NRV adjustments are.

So I just don't like to see it, but it is what it is.

And then, maybe turning to operations here, Michael, at Dolores, certainly there were some issues earlier on during the year.

I just want to make sure and confirm are you back to normal now in terms of open pit mining?

Are you back to 100% in terms of that mining rate.

And as you mentioned, you're going back underground fairly soon as well?

Yes Cosmos.

Well I can give you some more color after but I pass it on to Steve, right now, to give you all the details on that.

Hi, Steve.

Hi Cosmos.

Yes, Q3 we were intending to kind of bump up the mining rate and accelerate the mining rate to make up for the shortfall that we had in Q2 with the disruption on the access road.

We got hit with some rainstorms and have pushed this little heavier than normal, push this out of the bottom of the pit, where the high grade ore is.

We have accelerated mining rates.

We're seeing mining rates on the 125,000 tonne a day rates and we'll continue that through Q4 as we try to make up that shortfall we had in Q2.

The good news is that the rains have subsided in October.

We are back in the high-grade.

Fortunately for us, it has happened simultaneously with this leach pad construction works that we've got going on and as that leach pad, that new area of pad comes open, which is happening as we speak, we're able to put that high grade directly on the pad, plus we have the -- as Michael alluded to the expanded rates through the pulp agglomeration plants.

So I'd like to say all the stars are aligning up for Q4.

It looks pretty good.

And we are mining at good rates and also the underground mine as we mentioned is coming on stream.

We are starting to stock mine as we speak.

So that ore will be coming through as well.

And that ore should be coming in Q4, Q1 sort of timing, I guess.

Yes, so Q4 through Q1 into the ongoing quarters and in 2019.

We fully expect to see a ramp up of production in the underground.

Will be seen each month, more and more tonnes coming out of the underground.

And I don't know if you want to add anything, Michael, before I move on to La Colorada here?

Well, I think Steve pretty much put it out there, right.

Everything is back to running normal going strong like especially what I see on the filter rates on the expansion kits, those are really nice change there, and they are working on a budget like every year, right now and we'll be ready for January with the forecast and all the numbers for you.

Great.

And then on La Colorada, Steve or maybe Michael, could you give me an update in terms of previously, you had some issues on availability of backfill.

Are you okay now?

Have you resolved that issue?

And I saw that your grade -- head grade was up a bit quarter-over-quarter.

I think previously you had mentioned that, once you get the backfill availability issue resolved, that's going to help in terms of grade.

Could you give us an update and when could we -- could we continue to see higher grades?

Yes, I'd love to, Cosmos.

Great question.

The backfill is running very well for us.

We are getting backfill to the stopes.

We actually did see the benefit of that in grade.

The other benefit we are seeing as you noticed at La Colorado is throughput.

Our throughput is up.

We are taking advantage of that higher throughput in opening up some of the lower grade areas of the mine.

So we are not -- we're not or call it high grading into the high-grade at higher throughput as well.

The backfill is allowing us some additional throughput and I'd like to say Q4, we are anxious to see the results.

This expansion is delivering every bit and more than we expected, and we're very pleased with what we're seeing.

Yes, just to weigh in here.

I mean, La Colorada.

What can I say?

Unbelievable this mine, how the expansion has performed.

As you noted, there reproduced over 2 million ounces in the quarter.

So new record for La Colorada going very strong and there's no reason why that should change and top of that major discovery that we made that will keep us busy on the exploration side for a long time and will for sure deliver very exciting results for La Colorada.

So it's just an exciting, really exciting mine and ore body right now.

Of course, and Michael.

My last question is on that new discovery at La Colorado.

Certainly good grades, thick, thick zones that you've discovered.

But again, if I look at that compared to the reserve that you have at La Colorado.

The new discovery looks to be somewhat lower grade in terms of silver and higher grade in terms of byproducts, but with some fairly high grade pockets as you have shown in your core box in that picture over there, how should we look at it and how does that sort of fit into the overall La Colorada operation?

Yes, I will start it and I will pass it on to Chris to give a bit more color on the geology here.

The way you should look at it.

Well, first of all you know that in La Colorada what we're mining our veins normally right that's few meters wide if that -- now this intercepts up to 223 meters and I'm sure you noted that we could actually not reach the other side of the skarn yet, because we didn't have big enough equipment underground to drill there.

So we don't know yet where the -- where the skarn ends in that long hole, that with long intersect, the last sample and at some in 5.7% zinc.

Of course, there is more base metals with that because we are getting deeper in the system that's just the geology and the zoning we see in the geology but how we should look at it, there is two different types of mineralization there.

We see mantos that are higher up close to our operation.

They run very, very high grade base metal and silver similar higher grade than our reserves that will be obviously our first target and then you should look at the skarn as a separate target which are very, very wide intersects more base metal rich, still with nice silver, which will add up to very large tonnage here very quickly, while we keep drilling and now, I'll pass on to Chris here with a few more remarks.

First of all, thanks for bringing that up.

I was waiting for you to bring it up.

As Michael has mentioned, we've got these veins NC2 and NC6 that feeding into the limestones giving us as Michael mentioned these mantos which are higher grade in some respects there between sort of 10,15, 20 meters and then we're going down into that skarn where we've got the typical classical skarn assemblage and then a variety of base metals.

As we assume we're going to get closer to a potential source, which we may see the copper going up and that really gives you a sense of -- for the short term, we'll be looking to try and resource up those mantos which may be only between sort of 50 meters to 200 meters away from the current mining levels and then look to continue just drilling and understanding what we have in terms of this skarn.

Our next question comes from Chris Thompson with PI Financial.

I saw the quarter was a good quarter.

Just want to sort of dig in, I guess just following on from Cosmos's questions, looking at Dolores first of all, could you give us a sense of sort of throughput or on the open-pit underground and pulp agglomeration at the moment and what is the nameplate on those three components?

Sure, Chris, this is Steve.

Like I say, in the open pit, we are currently mining at rates around 125,000 tonnes a day.

We're going to try to push that a little bit harder over the next few quarters again to make up for Q2.

But that's pretty much the rates we're mining.

The pulp agglomeration plant nameplate is 5600 tonnes a day.

As Michael mentioned, we put two expansion kits on the three filters we have and we're pretty much seen nameplate capacity.

We'll see how it reacts over a full 90-day quarter.

We don't want to call that too early.

We still have the third expansion kit available to put on.

But we kind of want to see how these two react before we put that on.

We think we're pretty well there at nameplate right now.

The low grade heap leach crushing capacity, of course, used to be 16,500 tonnes per day.

That is the nameplate on that.

We probably don't have that amount of low grade the feed to it given the 5600 tonne a day in to the pulp agglomeration.

The original design if you go back to the technical report, we were dropping back to about 14,000 tonnes a day.

So as we move and that -- it kind of depends on where we're at in the mine sequencing, but we'll be in that 10,000 tonne to 14,000 tonne a day rate of low grade going out to the heap with the 5600 tonne a day from the pulp agglomeration plant.

Now the underground -- the nameplate that we're going to mine to is 1500 tonnes a day and we're just starting to stope mine today.

So, I mean we're -- we're essentially back starting this quarter just starting to ramp it up, so we may expect 30,000 tonnes or so this -- in late Q4 from the underground and then that will ramp up through 2019.

Great.

Thanks, Steve.

That was very detailed.

Thank you for that.

Just moving on , I guess to La Colorada, obviously fantastic exploration results.

I guess, the unwavering me is looking beyond, I guess current capacity and asking the question of what are the bottlenecks for that have to be, I guess, succumb to consider an expansion there?

I mean, obviously plant side, what -- what are we looking at?

Well, look, this is early days in the -- on the exploration side, there.

I think, this is skarn, as I said.

That's the new type of mineralization that we encountered at La Colorada.

That skarn deposits can be very, very large and I think the wide intercepts that they encountered there are very positive indication for that so far.

I think it's far too early to talk about the bottlenecks right now.

On three thing that or as I said, as we don't know yet what the size is.

I think right now, I look at La Colorada as a credibly well running operation.

As I said 2 million ounce production or over 2 million ounce last quarter, going strong.

I think with the new shaft, we have ample capacity to keep going where we are for the veins, you know that we are holding right now over 10 years of proven and probable high grade reserves.

We keep finding obviously more -- more veins as well, that will be produced over the next few years.

So with the new plant, ample capacity there too so, well for what we have in the veins, and what we found in the mantos, I don't really see a bottleneck there.

I think there is enough capacity.

We obviously sized the shaft for deeper, for deepening in the future and larger production.

I think, you maybe recall that we had already years ago a few very deep intersects of the veins.

So we knew that the veins are continuing deeper down.

So that has been already taken care of, when we -- when we sized and built the shaft and the plant.

So looking at this very -- potentially very large skarn deposit that will be a different story, and give us a few more quarters to drill.

I am very excited about it.

And I will have somewhere probably towards mid or end next year better idea on that size.

(Operator Instructions) Our next question comes from Mark Mihaljevic with RBC Capital Markets

So I guess just kind of following up to Chris' question.

Obviously, you guys looking little near term.

Obviously, you guys have been able to push the plant, pretty heavily and the undergrounds been able to fill it with some of the low -- some lower grade stopes.

Can you give us a sense of what -- what do you realistically think you could push that -- push everything kind of as it stands right now.

Do you think the mill and infrastructure is tapped out reasonably close to here.

Again, I believe the shafts well oversize.

And I guess you've got the second plant sitting there.

So just kind of what the near-term potential is to keep pushing things?

Yes, great questions, Mark.

This is Steve.

I hate to project too much out.

We want to let the operators kind of and the miners get comfortable with the expansion.

We're seeing that they're getting comfortable and the rates were coming up.

I don't anticipate over the next year that we're going to have any kind of bottleneck in the shaft.

If you remember the shaft we built for basically 2,200 tonne a day capacity, out thousand meters and we develop that shaft down to 620.

We're actually running the shaft below its top speed right now.

It improves on the maintenance wear-times and things like that.

So we don't see any bottleneck in the shaft at our current mining levels at all.

Likewise in the new sulfide plant.

We've got pretty good ample capacity in that sulfide plant and we still run the oxide plant where we had a little bit of excess capacity there as well.

Again, as I look out over the next 12 months or so, I don't see the plant being a bottleneck, either.

The bottleneck really comes down to the mining sequencing and the development sequencing for mining.

To cut and fill mine and we're having to develop footwall drifts and go in, and -- and cut and fill mine and then fill those mines and all that sequencing is really the bottleneck to production.

Particularly when you think about, it's a fairly small footprint, and we're fairly deep on that mine.

Now, I will say that we are starting.

Again some of the lessons, we learned in Peru, on this mechanization.

We are starting to look at that La Colorada and we were down there a couple of weeks ago and we're seeing some positive results there.

So I'm optimistic.

I'm very pleased with what I am seeing.

I'm very pleased with the operators' abilities to take advantage of this expansion.

I'm very excited as we move into next year.

But I don't want to really project, where it might go.

Other than it's going to go up.

Really appreciate that, and appreciate see you -- knowing the conservatism you typically embed in your answer.

I will take that constructively.

And I guess just kind of following up there, again as you mentioned, pulling in some of these lower grade stopes, A, is that, are you pulling in mineralization that's kind of outside the reserves and you're kind of passing by it.

And just taking advantage of that and is that -- is there the opportunity kind of, when you talk with this mechanization and not the kind of expand the mining with take some bigger stopes and given the benefits of economies of scale with the bigger operation?

Yes, that's exactly right.

As we expand and we get more tonnage, we are seeing some incremental benefit on costs.

Costs are something we're really keyed in on right now, because we do feel if we can lower cost.

It will allow us to take advantage of some of the stopes that are outside of reserves that are lower grade.

There's not much of that at La Colorada.

La Colorada has ore deposit, you're generally -- you're either in grade or you're not.

And it's pretty good grade when you're in there.

So these stopes are in kind of fringe areas up in the upper levels that we're bringing in, and again it gets back to the sequencing as we balance development with the cut and fill.

We don't really have the capacity to push down in the high-grade levels of the sulfide ore.

So we're kind of going up into the fringe areas of the oxide ores, which generally are lower grade.

That's what's happening today.

I mean in general as I mentioned at the beginning, discern vein deposits we're mining at La Colorada, they are few meters wide, and that's on top of it -- the excitement on this mantos that are fairly close to this veins.

And so very wide, multi -- like up to 10 meter, 12 meter intercepts which obviously will allow us in the future to have hopefully a larger footprint here for mining.

Perfect, thanks (inaudible) guys on moving over to Dolores.

Again, with these expansion kits for the pulp agglomeration plant, is that something you see as potentially justifying you going past 5600 tonnes a day or is that the economic tradeoff of spending more or you do not have enough higher grade material that would justify the trade-off of the higher operating costs with a -- with the pulp agglomeration plant?

Yes, you hit it on the last point, Mark.

Even if the plant could do more, we really can't deliver much more from the underground and the open pit today.

Now in later years that might open up because we do know as the pit expands, we do get access to more and more high grade.

But as we see over the next, again year, year and a half, the limit is really what high grade the mine can deliver.

Perfect.

And then I guess one more from me.

Do you have an update on any discussions with down at Morococha for with Toromocho.

Has there been any progress on that move there , any indications of a time line or kind of what the potential cost to getting something done there?

Yes, Mark.

I mean, costs wise we really haven't updated any costs from what we've had in our public filings over the last several years.

We haven't really updated any studies there.

We are in close coordination with Chinalco in the development of Toromocho and we don't really, we have not really established a firm time line yet.

We probably -- we have started doing a bit more engineering work on a new plant and what it might be, but we haven't established any kind of time line yet on construction.

And it's fair to say, you'll probably end up just building a new plant rather than moving the old one there?

Yes, so that's fair to say.

We will keep the old one running.

There is components within the old plant will probably move over.

But we certainly want to minimize the downtime, so mostly we're looking at brand new plant.

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

I was just hoping, you could maybe update us on the -- earn an agreement with Kootenay.

How much have you guys spent so far and at what point, are you guys at in terms of that earn interest on the property.

And then, when do you expect to finish that spend and then maybe just any comments around what you kind of see with that property.

Now that you've had some time with it.

Thank you.

Lawson, Chris here.

Yes, I mean we're moving along with that joint venture.

We are within the current option agreement spend.

We have a payment coming up in March next year, and which is part of that option agreement payments.

We are working currently on the drilling that was done at the beginning of this year doing some met testing, seeing if it's -- meets the criteria that Pan American has.

But we are still active on the joint venture and it's still in play.

So that's really all the information I can give you at the moment.

Well, it will be part of our -- when we go at the end of the year to our reserves resource calculation, our exploration plans.

As I mentioned we're -- just started and amidst of our budget work here for next year and did not define it yet last and so, when we announce everything in January, I think we'll have a clear picture where we will sign our exploration dollars to.

Okay, that's fair.

And then just on my prior question, on the Toromocho mill.

I'm not sure if I missed it, but did you mention where things were in terms of the timing on that.

I apologize if you said, something, but I don't think I heard -- heard anything addressed in terms of that.

Yes, Lawson.

I didn't, other than to say that we are in close coordination with Chinalco and our time has not been established yet.

We have started doing a bit of engineering work just to kind of see where we might put the plant and how it might look.

But we haven't established any kind of construction time line yet.

And then are there ongoing conversations with that or is this something that's just so far off that you're not really worried about it at least at this point?

No.

There's ongoing conversations and it stems around the development rates of the Toromocho pit itself and the laid backs and as copper prices changes and their business changes, that's kind of a dynamic model.

So we're just coordinating with them.

And at this stage that they see the need to lay back the pit into our mill area then that's when we have to -- when we see that timing.

Not when we have to move.

Our next question comes from Bill Fleckenstein, Fleckenstein Capital.

Michael, do you have an update on the legislation -- potential legislation changes in Chubut by any chance?

Yes.

Lots of changes in Argentina in the last quarter obviously on the federal side or on the larger economic side, quite a big devaluation that we've seen there in Argentina.

I think, it's stabilized now, the currency, looks like which is a good thing.

We still continue to see the country very much in favor of local and foreign investment, good and more stable place than it was a few years ago.

In terms of Chubut, I don't know if you had a chance to follow some of the press in Chubut.

But the debate on the mining has intensified largely there, with a lot of members of the legislator and members of the unions, et cetera, et cetera.

So there is a lot of information out there.

There has been a lot of [town halls] and information that has been shared with the public about mining and what can mining could do for the province, for the country, et cetera.

Navidad, obviously a very high-grade, very large and high quality project still and, we are really looking forward to continue this open and transparent debate in Chubut with the legislature and the public there.

And hopefully with the appropriate controls from the government bring that into production.

I have no time line obviously at this time, Bill.

I don't -- as I always mentioned, this is a political process that the province has to go through.

We're very aware of that and we continue to inform and wait how it advances.

This concludes the question-and-answer session.

I would now like to turn the conference back over to Michael Steinmann for any closing remarks.

Thank you, operator and thanks everyone for calling in this morning.

Looking forward to discuss with you Q4 and the full year-end results in about three months.

Have a nice day.

Thank you.

This concludes today's conference call.

You may disconnect your lines.

Thank you for participating and have a pleasant day.