SSR Mining Inc (SSRM) 2011 Q1 法說會逐字稿

Good day everyone and well welcome to the First Quarter 2011 Financial Results and Project Update conference call. This call is being recorded. At this time, for opening remarks and introductions I would like to turn the call over to John Smith, President and CEO of Silver Standard.

Thank you Allie. Good morning, ladies and gentlemen. Welcome to Silver Standard's First Quarter 2011 conference call reviewing our financial performance and an update on our business. On the call this morning we've got Joe Phillips our Senior Vice President, Operations and Development; we also have Tom Yip, our Vice President Finance and CFO; and Ron Burk, our Chief Geologist. Our financial statements, management discussion and analysis and business update have been filed on SEDAR and are available on our website. We have a Webcast accompanying our comments today and it can be found at the web location referenced in the news release. Now, we will be making Forward-looking statements on the call today and I advise you to refer to the disclosure accompanying our news release and also on SEDAR.

I'm pleased today to be reporting on our first quarter results. We produced 1.7 million ounces of silver this quarter, as planned, and 3.2 million pounds of zinc which was above plan. Debottlenecking in the mill has been completed, including adding a tertiary crusher on budget and on schedule. We generated some revenue of CAD60.1 million during the quarter and costs are being managed well despite the Argentinian inflationary pressure. As we complete the first quarter, we made strong progress on our objectives for 2011. The four elements for success for Silver Standard this year are, having Pirquitas performing as a mine with a predictable and improving performance. Moving San Luis into construction once we've completed our negotiations with local communities and have approvals of our EIS. Thirdly, provide clarity on how we will develop our various resource opportunities around Pitarrilla. And we will continue to build our capability to deliver on our strategy through the hiring and development of the right people to secure success. Our aim is to strategically position Silver Standard to unlock value for shareholders in all parts of our business.

In the first quarter we confirmed the appointment of Joe as senior Vice President of Development Operations. We also have considerably added to our technical and operating capability through strong recruitment. This ability is a key part of providing our shareholders and others with the confidence that Silver Standard can develop and operate assets in addition to our well-proven capability in exploration. As part of our strategy of growth, in February we entered into an agreement with Esperanza Resource to purchase their share holding in the San Luis project. Upon completion of the transaction we will now have 100% of the project ,and prospectively over 34,000 hectares of land. Esperanza requires the shareholders to approve the transaction at this forth coming AGM, and this vote is scheduled for June. At the end of that we expect the transaction to close as a result.

Subsequent to the quarter and in conjunction with Pretium, we took the opportunity to sell down a second tranche of shares, which now brings the gross proceeds of the transaction to date to CAD350 million. While we still retain 29% share holding, providing exposure to gold and future prospectively. This provides funding to allow us to proceed with the execution of our development opportunities. Pirquitas is improving. Joe will cover the mine in detail, but we have a debottlenecking the crushing capacity and worked through a major maintenance program that has us well positioned through the remainder of this year to deliver on our annual guidance of 8.5 million ounces.

The first quarter was impacted by heavy rain but we achieved our target production within 50,000 ounces of our plan. Significantly, we also concluded our union negotiation without disruption, particularly important given today's silver price. While we are driving the development of projects forward, we clearly want to do so without adding unacceptable risk to delivery and cost. Our projects group is very focused on task and at all times look to where additional value can be achieved either by expediting activity, or value enhancing project activity. Joe and Ron will give an example of this in Mexico, which plays to our clear and simple view of value for shareholders.

We know that we have a pipeline unlike any other Company and we are also are acutely aware of the value of it is by delivery. This drives us and provides investors with exciting and continuing value from Silver Standard. So returning to the primary purpose of this call, our first quarter 2011 results, I'd like to hand over to Tom Yip who will speak about this. Tom.

Thanks, John and good morning everyone. Q1 is the first quarter which we are reporting under IFRS. And our 2010 comparative results have been restated to IFRS in the current period financial statements. I refer you to note two of the financial statements found on SEDAR and our website for a detailed description of our accounting policies under IFRS, and note 25 which contains disclosures and reconciliation of the impact of IFRS on previously reported results.

During the quarter we saw a significant increase in the price of silver since the end of 2010. This has resulted in improved operating margins at Pirquitas in the first quarter and contributed to the sequential improvement quarter-over-quarter. In the first quarter we produced 1.7 million ounces of silver compared to a total of 2.1 million ounces in the fourth quarter of 2010. This lower production level is in line with our expectations as we mine to a lower grade area of the pit.

The cash production cost, which includes direct mine costs less by-product credits, was $10.93 per ounce in the first quarter compared to $9.47 per ounce in the fourth quarter of 2010. The cost per ounce variation is primarily a function of lower production in quarter one. Our total mine spending of $21 million for the quarter is in line with our expectations, similar to the fourth quarter of 2010. We are maintaining our cash production cost guidance of $9 per ounce on our forecast of 8.5 million ounces of silver.

Looking at the breakdown of our cost structure on a unit basis, including third party charges of royalties, export taxes, treatment and refining charges, first quarter cash operating costs were $22.23 per ounce compared to $16.07 per ounce in the fourth quarter of 2010. The sum dollar per ounce differential is made up of $1.50 from lower production at the mine, $3 from higher silver prices and its effect on third party charges and $3 from the timing of sales versus production ounces as we record our TCRCs in the period we record revenue ounces. So in the fourth quarter we sold less than we produced, but in the first quarter we had the opposite effect where we sold more than we produced. For the year, this sales versus production variation will have [lauft]. Total cash operating cost guidance for the year has increased by $4 to $19 per ounce of silver produced. This is primarily due to the effect of higher silver prices on third party charges. Including non-cash depreciation and amortization, total costs were forecasted at $22 per ounce.

In terms the of revenue, we're totally leveraged at the market price of silver. During the quarter, we realized an average of $31 per ounce on 2.1 million ounces of sold, versus $27 per ounce in the fourth quarter on sales of 1.7 million ounces. Total revenues increased 33% over the fourth quarter. Turning to the total Company P&L. For the first quarter 2011, we reported net earnings of $9.9 million or $0.12 per share versus a net loss of $3.4 million or $0.04 per share in the first quarter of 2010. The main components for the first quarter 2011 results are shown on this slide. At Pirquitas we sold 2.1 million ounces of silver, and after transportation deductions, refining costs, revenues were $60 million. Cost of sales was $22.5 million. Depreciation and amortization was $5.6 million, and export duties were $3.9 million. This results in earnings from mine operations of $27.9 million.

G&A costs for the quarter was $6.6 million, which includes stock-based compensation of $1.5 million as we continue to amortize the (inaudible) value of previously granted options. Interest expense and other finance costs of $8.8 million mainly relates to the convertible debenture. The foreign exchange gain of $2.3 million relates to our translation of net monetary assets which are primarily Canadian cash translated on a stronger Canadian versus the US dollar at March 31, 2011. And finally, income tax expense of $4.3 million mainly relates to the earnings from mine operations.

In terms of cash flow we began the year with $232 million, and during the quarter we had a net increase of $28 million. We generated $22 million from operating activities, which is mine operations less G&A costs and convertible debt interest. Financing activities included stock options we exercised for $6.7 million. And during the quarter our investing activities includes sustaining capital at Pirquitas of $1.6 million, the purchase of two near new [ball] mills for Pitarrilla for $6 million. And $6.8 million at our exploration and development projects. We also spent $2.6 million on refundable value added taxes at Pirquitas. Offsetting these expenditures we received further of $17 million from the over allotment exercise for the Pretium IPO in early January. We ended the quarter with $261 million in cash.

Not included in the $261 million, and subsequent to the quarter, Pretium completed a secondary offering of 11.5 million units which relates to the Pretium shares that we own and we received gross proceeds of CAD115 million. So in summary, with the cash flows from Pirquitas, and our significant cash resources, we are well positioned to advance our portfolio of project opportunities. Back to you, John.

Thanks, Tom. Now I'd like to introduce Joe Phillips, our Senior Vice President Operations and Development. Joe.

Thanks, John, and good morning to everyone. This is an exciting quarter for us in operations and projects at Silver Standard. It's gratifying to see the evolution of our operations at Pirquitas and to see our projects moving steadily forward. At Pirquitas, we produced 1.7 million ounces of silver in the first quarter. We are right on target with our production forecast for the quarter and right on time with the installation of our most important objective of debottlenecking the crushing plant. I must admit that I lost a bet with our construction team and in fact the capacity of the crushing plant looks like it will be higher than I predicted. We installed our new HP500 crusher late March, and in the final days of the quarter with it installed, we demonstrating crushing rates through the plant of 350 tonnes per hour which is a 40% improvement.

As with most debottlenecking projects it ended up creating more work. In our case, will lead us to make adjustments to the downstream circuits to handle and efficiently process the increased capacity. And while our efforts will significantly increase our capacity in coming quarters and years, please don't multiply our past production by 40% as the grades of the ore which we processed in the fourth quarter of 2010 were higher than our average grades. With zinc we produced 3.2 million pounds in the first quarter. This was in line with the fourth quarter of 2010. We completed the first sale of zinc concentrates in January of this year and continue to forecast production of 10 million pounds for 2011.

On our guidance, our first quarter total production of silver was 1.7 million ounces, due to the mining of a zone with lower than average grade. Now, while I hope Ron and his people will continue to find more high grade ore in the future, our ore deposit is one which is not a-typical in the mining industry, in that over its life we'll have zones of higher and lower grades. And as our mine continues to mature it will not always fit a straight line of increasing production. This quarter was the first evidence of that, and while I know we still have a lot to prove to the world in regards to Pirquitas, our production plan for 2011 grows steadily through the year as our plant capacity is expanded. And we balance the ore supply to the plant from pit phases one and two. We remain focused on delivering our guidance of 8.5 million ounces.

Our total mine operating costs were also right in line with budget. And as we ramp up silver production in the remaining quarters, our unit costs at the mine will come into line. As can be seen, the bitter sweet side of today's high metal prices is that third parties take a part of the wind fall and price participation clauses and other charges show up as higher operating costs. Following the debottlenecking of the crushing plant, primarily among the steps to take advantage of our new capacity was to rebuild our ball mill drive system. Increasing our ability to fully load it, and an overhaul of our internal conveyor systems. As you can imagine when we increased the crusher by 40%, rock went everywhere. In April we completed the overhaul of the mill drive and conveyors and are now operating at full rates and are on target for our 8.5 million ounces.

Our production of 3.2 million pounds of zinc is on a pace 30% ahead of forecast. In our activity in the coming months we're installing a concentrate drying system at site, and when complete we will have a more openly marketable product and we'll be investigating additional avenues for sales. During the quarter, we welcomed Bruce Kennedy as our new general manager at Pirquitas. Bruce is a seasoned operator whom I met when he was Operations Manager at Phelps Dodges Ojos del Salado mine in Chile. Most recently Bruce was with Goldcorp in Mexico at Penasquito, and will be leading Pirquitas forward.

We also added significant strength in the area of metallurgy when Trevor Yeomans joined us as our new Director of Metallurgy. Trevor will be working closely with Bruce to continue the optimization of Pirquitas, in addition to our other projects and opportunities. We will be taking further steps to fortify the team in the coming months. My final comment on Pirquitas' first quarter is to mention that in early January I expressed concern that we have normal rainfall so that water supplies in local aquifers would be adequately recharged. Mother nature responded the following week with a rainy season which recorded the highest precipitation in 25 years, so be assured I'll never ask that question again. I was pleased with the way the facilities operated during these rains, and other than having to process more medium grade ore from ore stock-piles during some days of heavy rain, the operations showed little impact. The fact that our production was in line with budget is a testament to that.

At San Luis in Peru, we're in the final stage of the approval process for our EIA. We received all the comments from our public workshops and hearings and the recommendations from the Ministry of Mines. My view is that we're on schedule for approval by the third quarter of this year. We've hired a new General Manager for San Luis, Mr. Jim Moore, who is another very experienced operator, who includes international experience at mining projects in Bolivia and from Yanacocha in Peru. Jim brings 40 years of experience in mining, and will be the nucleus of our min and project team. We're building the project team for San Luis ahead of our expected approval of the EIA.

We're achieving -- excuse me, we're advancing our negotiations was the two major communities who control land over our concessions, and while it sounds a bit repetitive to talk about ongoing negotiations, we're at a substantive stage of the discussions and talking in detail about our projects and participation in the communities during the project. I feel that these discussions are proceeding in line with our expectations. We're having a lot of fun with our Pitarrilla project in Mexico. Our feasibility study for the Sulphide project is on schedule for completion by mid year. As you know, this is a large resource of over 700 million ounces, roughly a third of which is in oxide resources near the surface, and the remainder forms a large sulphide resource which will be underground mined.

We have four drill rigs completing an infill and development drilling program for the oxide deposit, and we're proceeding on the definition of how the project will develop. We're conducting extensive metallurgical testing and completing the baseline environmental work required for permit application. Our engineering contractor is completing the sulphide feasibility study and the preliminary design and concept for the oxide project. We're adding to our projects and operations team at Pitarrilla with the recent hiring of Dr.[Abil Sidicol], as Process Manager, and the imminent addition of two additional key members. We're quickly expanding the team of the project. Abil is a PHD metallurgical engineer who collaborated with me on the construction and start-up of another mine in Mexico, and is a seasoned Plant Operator. I look forward to being able to share more technical information regarding our process on this project in the future.

The Diablillos project in Argentina is located 275 kilometers south of our Pirquitas mine, and will enable us to take advantage of our existing infrastructure in Argentina. We're completing the engineering and metallurgical studies as a part of our PEA, which is expected to be completed in the first half of 2011. In summary, Pirquitas is right on course for 8.5 million ounces of silver this year and exceeded expectations in the production of zinc. San Luis and Pitarrilla are moving forward rapidly and I hope will be the subject of very positive announcements later this year. Back to you, John.

Thanks Joe. Now I'd like to introduce Ron Burk, our Chief Geologist.

Thank you, John. I'm pleased to report that by the end of the first quarter, we had initiated three major drilling campaigns at Pirquitas, Pitarrilla and at the previously undrilled Nazas project in Durango, Mexico. Approximately 12,000 meters will be drilled at Pirquitas in order to improve the definition of the mine's ore reserves and resources. [Expiration's] goal is to provide resource information that will contribute to the predictable and efficient mining of the ore body. Additional drilling will test satellite zones of silver, zinc, tin mineralization that have been identified roughly 500 meters on either side of the active open head.

At Pitarrilla, approximately 11,000 meters is being drilled to better define near surface resources of oxidized silver mineralization, which we are evaluating as part of a study that is examining the viability of an open pit, cyanide base operation. Such an operation, we believe, would enhance the value of the project and would be complementary to our plans for the mining of Pitarrilla sulphide associated silver lead zinc reserves from underground. The third drilling campaign to be initiated this year is being carried out in the central part of our 236 square kilometer Nazas property, located just 15 kilometers east of Pitarrilla.

Some 7,500 meters of diamond drilling has been planned and we'll be testing what we consider to be high potential targets for neo type deposits of epithermal silver, lead, gold and zinc. Based on data from a comprehensive and recently completed programs of rock samplings and geophysical surfing. Concurrently with these drilling programs we have been conducting generative exploration programs in the southwestern United States, Mexico and Northern Argentina ,and new projects are being staked. We look forward to receiving the (inaudible) results from our ongoing drilling programs with realistic optimism, and we plan to release periodic updates on the progress of these and other projects throughout the year. Back to you, John.

Thanks for the update, Ron. Before we take any questions I want to restate our key success factors for 2011. These are, firstly, we want Pirquitas to achieve predictable steady state operating performance. At San Luis we want to make a production decision as soon as practical. And at Pitarrilla we will update the market with a path forward that maximizes value once we have fully evaluated the oxide and sulphide resource opportunities. And finally, to our people, we are focused on building up the foundation that has already been established at Silver Standard. This means continuing to hire the best people we can for the right roles. Accomplishing -- achieving this builds on the momentum of our fourth quarter results and will unlock the most value for Silver Standard shareholders. Thank you for your time this morning and now we'll respond to the questions that you may have.

(Operator Instructions).

Our first question comes from Haytham Hodaly of RBC Capital Markets. Please go ahead.

Thank you. Good morning, gentlemen.

Good morning, Haytham.

Just a couple quick questions. Just wanted to hopefully get an update on the tin circuit, see if there's been any improvement on that. And also, is there any guidance for 2012 at Pirquitas, is there any expectation right now to beat the $8.5 million?

Okay. On tin, pretty much the same answer that we gave last quarter. We brought on Trevor Yeomans as our Chief Metallurgist, and one of the principal objectives he has on his list in his early months here is going to be to work on tin. We continue to run the tin circuit sort of as a pilot plant.

We have accumulated an amount of reasonably good quality tin concentrate which we plan to sell, probably this quarter. But, a it's going to be a study that we will hopefully complete by later this year. And the mission is to produce as much silver as we can with these prices.

So, I think, Haytham, your comment about where Pirquitas will be 2012, if you think about 2010, really it was only the fourth quarter we got on to sulfides. And through the first part of this year it's about debottlenecking the process, good progress on the crushing and we've done a major maintenance job on the ball mills, which again, puts us in a good position on guidance.

And we'll continue to work through 2011, improving the efficiency and flow-through of Pirquitas. So, we are looking, as Joe says, to maximize production at any opportunity we can. And that will be a building position for us.

Okay, no that's great. Maybe just 1 more question. If the stars aligned and you could develop the assets the way you wanted to develop them, what's the earliest you could see your next mine up and running and what year are you thinking?

Haytham, you know, on schedule we're looking at San Luis, we're probably more advanced there in terms of where we are with our EIS being submitted and we're looking at third quarter approval on that. Our negotiations with land owners are going well but it's like 1 of those things, we continue the negotiations, they're going well, but actually putting a time, an end time on that is difficult.

We're really focused on the third quarter this year, coming into fourth. I think if we got that, San Luis would be 2 years to get up and running and we would look to see what we could do earlier than that, but that would be realistically what we're trying to achieve.

But, you know Joe's team is focused on what can we do to get metal as quickly as possible, just recognizing from a Company point of view, we need to get that sort of pipeline of projects coming through to metal as quick as possible. So, it really is a focus for us. I think answer, 2 years probably on San Luis, we'll get going with it as soon as we can.

Pitarrilla obviously would be subsequent to that, is that correct?

We're running them in panels. We're trying to get four projects at the same time in development, and we've got a team at Pitarrilla that's separate from the work we're doing at San Luis. So, we're disconnecting that.

We're trying not to see it as a production line. We're trying to run 4 projects running in different things in different time lines. Because as you well know, 1 of them will get hung up for 1 reason that we can't deal with, we want to keep the other 3 moving.

For Pitarrilla we are continuing apace, working on the oxides. We're going to come out mid-year with the sulfides feasibility, and we hope to at that time, have a better read for the market and for ourselves on what we can do with the oxides. Because if we can get those to come together, that's a great opportunity that you then build on with the work that Ron's doing at Nazas, and effectively if that comes off for us and Nazas is Pitarrilla but bigger, then that's an extensive district play for us. So, 2011 is a big year for us at Pitarrilla, doing what we're doing with the oxides, but also what Nazas will unlock for us.

Great. Thanks, John.

(Operator Instructions).

Our next question comes from Chris Lichtenheldt of UBS Securities. Please go ahead.

Good morning, everyone. A few questions. First on the crushing. Is this still part of the -- are you still implementing the gravity circuit, and if so, can you just describe how you expect going forward this year the mine grade to be improved before it reaches the mill? Is that still the case?

Okay. Chris, you referred to the gravity circuit. That's a part of the tin circuit and so, that's not a part of the base load operation of the plant.

Okay. So, there's no gravity circuit ahead of the silver process.

No, no, we have a pressure jig circuit that does upgrade going into the mill and that is operating fine.

Okay. Sorry, maybe that's what I'm thinking of. How is the high grade there improved from the mine grade with the jig circuit?

Well, the jig circuit is designed to separate out the courser fraction that comes out of the crushing plant which we determined in our laboratory testing is much lower grade. So, it takes the finds and the higher grade out of the main ore flow and sends it to the mill.

Okay. Great. So there will -- okay, so will we see a grade improvement as the year goes forward even at a static mined ore grade?

The ore grade is going to be similar to what we produced in first quarter for the remainder of the year, the increased production really comes from increased tons and operation and more efficient running of plant.

I think, Chris, the point is that we're trying to get to this average grade material for the life of mine. We've got a mine year that's going to go 14 years, 14 years plus. Where Joe's focused on is volume.

If we can get the volume through we win more silver in process. So, the drive is to stay on average grade material, but drive through the mining, crushing and processing and that actually maximize silver through that process. And watch our recoveries, really try and recover as much silver as possible from all circuits.

What sort of mill tonnage would you expect in the fourth quarter. What sort of run rate are you targeting.

The mill is designed and has been operating at 4,000 tons a day. We crush 6,000 and separate out 2,000 of the lower grade tons per day. And the mill, since our reconstruction and -- of the drive system has been running right at that rate.

Okay. So, we should see similar grades and maybe 4,000 tonne a day at the mill, at the end of the year?

That's correct.

That's what we're driving towards is getting to -- the ball mill should be our natural bottleneck. We've proven that we can get it up from 3,600 to 4,000 tons per day. And clearly running that at maximum 4,000 tons a day as long as we can is our drive.

Now, that means that we have to ensure that all material in front, we build a stockpile to allow us to evenly flow that through. Now, as Joe's gone through, and the work in the crushing that's moved the bottleneck further down the process. So, it's a matter through the second and third quarter, really tuning that right the way up that we can have a continuous feed to achieve 4,000 at all times.

Okay. And lastly on the mine, the recoveries dipped a bit this quarter you say because of slightly lower grade. Should that remain static too now at 73% to 74%?

Our target is in the high 70%'s, and I'm pretty confident we'll get there.

Okay. So, no change on plans there. Okay. Thanks.

Just a few questions on disclosure or maybe for Tom. I think you said $3 of the increase in guided cash costs relates to higher silver prices. Can you just tell us what the silver price you used to use, versus now is in driving that cost? Just trying to gauge the relationship to silver and your treatment charges.

Going forward, Chris, what we use is our average price realized for the first quarter, so sort of in that $30 range.

Okay. And formerly when you provided the last cash cost guidance, what price were you thinking of then?

When we did that back in the late fall, we were running about in the $20 range.

Okay. So, went up about $3 on costs with about $11 increase in assumption?

That's pretty close.

Okay. And just another quick disclosure question. I'm just a little -- I just need a little bit of help understanding the earnings from mine operations of $27 million. If we look at the $60 million of revenue and the $46 million in production costs, we get to number much smaller than that. Can you tell me what else is in there that increases that earnings from mine operations or what I'm missing?

The -- what you're seeing is the sales are on the 2.1 million ounces. So, the $60 million includes both silver and zinc, right?

Okay.

The cost structure is pretty much what we've said at the $10 per ounce. There's also export taxes in there, and D&A costs.

So, export taxes are not in your $27.8 million of disclosed earnings from mine operations.

It is.

It is. Okay. Maybe I'll follow up after. I'm just look at $31.66 realized, $27.50 total productions costs, times 2.1 million ounces sold does not get me $27 million of earnings from mine operations. That's just where I'm confused. I don't know, I guess it's taxes as maybe as well.

Well Chris, we'll give you a call later and run through that and make sure we're clear with you on what --

Sure, that's great. And then last question. The payment terms on the zinc. Are you getting -- what sort of payment are you getting on the 4.6 million pounds sold. It looks like about $0.50 a pound in the quarter, is that right?

That's the debt after the TZRCs on the zinc [costs].

Okay. Okay.

Thanks Chris.

That works. Thanks.

(Operator Instructions)

I'm not showing any further questions at this time. I'd like to turn the call back over to -- I'm sorry, I do see a question from Zach Kype of BMO Capital Markets. Please go ahead.

Hi, can you guys hear me?

We can, and how are you?

I'm doing fine. Look, I've got -- Chris asked most of the operational questions that we had, but I'm wondering if you can provide us a little more clarity on Pitarrilla. And particularly the oxide study that you're undergoing. Is it our expectation that we'll only see the sulfide mid year, and then we can potentially see in the second half of this year some additional information on Pitarrila? Can you give us a sense of the timing of this.

Andrew I'll let Joe explain, but just as a precursor to that, we undertook to the market that we'd do an undergoing study to feasibility level. And we've been progressing that. So, we'll continue that and finish that and on schedule for mid year we'll release that.

But what we've done -- you know when Joe came on board and the team started to look at what we were doing in developing the underground, as the guys have looked at where the opportunities are, it's clear that the oxide zones for us are an area that we scratch our heads about as to why we're not able to recover more silver.

So, we're doing an exercise around about that because if you look at the mine, the other company mines that lie on the same line through, you can see that they are recovering metal from their oxide zones. So, we're doing some more work on that because if we can unlock that, then clearly it'll add appreciable value to the all of Pitarrilla.

So, it's in a sense is a johnny-come-lately project. It's slower than what we were doing with the underground. But, what we're trying to get too, at the time that we release information on the underground, is that we're able to give you some more color around what we think we can do with the oxide. So that's why we're working apace on it.

Okay. And can you provide us any information on what type metallurgical work you're doing to see if you can improve the oxides.

Yes, we sure can. Actually, it's not that mysterious. It's pretty much basic bottle rolls and metallurgical leach recovery tests. We're doing the testing at a number of different grind sizes since this is a fine grained ore and to see how that impacts recoveries. Nothing magical.

All right. Metallurgically, is there anything that you're coming across, you know mineralogically, that is causing the lower recoveries. And can you give us a sense of where those recoveries are.

Okay, the oxide areas that have actually are in 2 different areas. And at least 2 of those areas have great recoveries. There is 1 which has a significant amount of resource that has a combination of very good and some marginal recoveries.

Really, what we're trying to do here is, when we did the original exploration, we did some very quick tests to see what was soluble and what wasn't. And now, with the more conventional testing to see, as is the case with silver, which just takes longer to leach, if that might not be part of the reason why we're seeing the lower recoveries.

Okay.

So, I'm guessing it'll be more, a bit more milling and more time in leach to make those recoveries come out.

Okay.

So, we're working apace on that Andrew. We're trying to get to a point that by mid year we'll get some view. At the moment, I think we're more likely in the third quarter, but we're seeing what we can do to help give the likes of yourselves and investors a sense of what we can do at Pitarrilla towards the mid year.

All right. And then, on San Luis, you indicate that you continue on to pursue agreements with the communities. I suspect those discussions have been side lined to a certain degree with the ongoing elections.

No, no we -- so, the general elections going and that's a separate thing. The discussions with our local communities are not impacted by that in any way. So, we're continuing to run along with those quite well.

What are the key issues that you're working on that regard, if you can provide some detail.

Yes, we certainly can. A general trend in Peru and in other countries that the people in these remote communities are more empowered and more participative in the whole process. And there's a legal and a recognized system to go through with the ministry of mines where you have open workshops and meetings with them, and discuss the kinds of participation and projects that the Company will do during the execution of the mine.

That's really the stage we're at. Both communities where we are, are quite interested in the mine. Very significant and overwhelming support for the project, but they want to know in detail what we're going to do and they want to make sure that we're held accountable for it.

Is that principally what came out of the public consultation process for your EIS process?

It was, absolutely. In fact, as you mentioned, doing that during a presidential campaign period does make you a bit nervous because it's an open forum for anybody to stand up and express any opinion they desire. We came through it very well. The questions were all good, constructive and informed and there was no opposition expressed whatsoever.

Okay. And then 1 final question, just on costs at Pirquitas. How much of an impact is inflation in Argentina impacting costs? You say you're trying to control it, but certainly there has to have been an impact on labor negotiations.

Yes, we completed our labor negotiations at a percentage slightly above the inflation. But, it effects our costs in the area of labor and some locally produced materials and supplies, but we offset that by our increased efficiency and higher production rates. So, that's our strategy.

And what's your sense moving forward? I mean, do you -- some companies that have discussed the potential for devaluation to take place. What are your thoughts on that?

Andrew, I think that's 1 that's sort of at a political level that we're unable to comment on. I think, for us, we recognize there is inflation in the cost and we're doing as much as we can at a local level to mitigate our exposure to that. There's elections the latter part of this year, and like every company we've got to figure out to work with whoever wins that.

All we can do is focus on what we can do and the end of the day that's about costs, keeping them as low as possible and as Joe says, the more answers we produce, the lower our cost per ounce gets. That's really the key drivers we can work on. At a political level I'm sure they'll address those other issues at a macro level.

Thanks very much.

I'm showing no further questions. I would now like to turn the call back over to management for any closing remarks.

So, thank you all for attending and being on the call this morning. Hopefully, we've given you a sense that Silver Standard is moving forward and we're ramping up our performance at Pirquitas. We're getting some real good progress around the process facility and that really is the place to unlock the value for us.

And at Silver Standard, we do offer investors compelling value. We're focused on delivery. We know we've got to deliver at Pirquitas and we know we've got to deliver on projects, and be assured that's the focus of the team here. So, once again, thank you for attending the call and good speaking with you. Thank you.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect and have a wonderful day.