SSR Mining Inc (SSRM) 2011 Q3 法說會逐字稿

Good day everyone and welcome to the third 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, Operator. Good morning, ladies and gentlemen. Welcome to Silver Standard's third quarter 2011 conference call. Joining me on the call this morning are Joe Phillips, our Senior Vice President, Operations and Development, Matthew Freeman, our Corporate Controller, John DeCooman, our Vice President, Business Development, and Ron Burk, Chief Geologist. We also have Ian Chancey here, Director of Investor Relations. Our financial statements, management's discussion and analysis and business update have been filed on SEDAR and are also available on our website. To accompany our comments today there is a webcast which can be found online and you will find that information in the news release.

We will be making forward-looking statements on the call today, and I advise you to refer to the disclosure accompanying our slides, news release, and also on SEDAR. During this call we will provide a review our financial performance and give you an update on our business. We will also discuss the disclosure regarding the revised mineral resources and reserves at our Pirquitas mine.

So, now I will begin with a review of our Company's third quarter results. As of Saturday we're back in production at Pirquitas but this quarter had its challenges with lower silver production and limited sales both one-off occurrences. We produced 3.3 million pounds of zinc during the quarter, a 17% increase over the previous quarter. But because of the unscheduled maintenance issue, we have originally disclosed that in September, we only produced 1.6 million ounces of silver this quarter.

As you know our maintenance issues required rebuilding the ball mill gearbox at Pirquitas, and Joe will discuss this in greater detail later. Now that we have completed rebuilding the gearbox with new original equipment manufacturer parts, Pirquitas is positioned to perform consistently. The gearbox issue, like a crushing capacity bottleneck, which we addressed earlier this year is a legacy from original construction, and this is the final second-hand piece of equipment of the mine, and we've dealt with it.

The Pirquitas plant is back up and operating as of Saturday and is increasing capacity on a managed ramp-up. We expect the mine will return to high production levels which were experienced at various times earlier this year. In other words, we should be at full annualized production of between 8 million and 10 million ounces of silver later this month. We are looking forward to consistent production at Pirquitas and have our management team in place to deliver on that.

Now I will turn to our revised mineral resource and reserves for Pirquitas. A part of the reason for the reduction we disclosed is a natural impact of having been in production two years. In addition, and more significantly, after two years of experience we have taken three factors into consideration as part of mine planning. The first 1 is to better understand the geology and mineralization of the deposit. The second, actual cost experience we've gained at Pirquitas over the past two years, and thirdly our decision to exclude the contribution of tin production til we define a new processing method.

Each of these factors have played a role in our decision, and Joe or Ron will address in detail how we're addressing these. For the revised reserves, Pirquitas will continue from 2012 for nine years, including over six years at an 8 million to 10 million ounce rate as a silver producer, with a further 2.5 years of production of approximately 3 million ounces of silver per year coming from stock piles.

We have selected our base case price of $25 per ounce for silver in determining a revised reserve. This is consistent with consensus long-term pricing used for other silver projects. It's worth noting that the current market price of approximately $35 per ounce would have a positive impact by converting portions of our measured and indicated resource to reserves extending the mine life accordingly.

Before I have Joe and Ron update you on our plans to increase Pirquitas' mineral resource and reserve, I want to add some perspective. If we step back a moment and take a look at Silver Standard, this [division] does not detract from what we've achieved in 2011.

We established on a plan earlier this year to improve Pirquitas, and we've implemented it. We've added new crushing capacity. We have hired a new general manager. We've begun to realize recoveries that exceed design. We've upgraded the ball mill to improve its reliability, and we improved safety, reaching a milestone of 1 million man hours free of any loss time injury at Pirquitas.

Additionally, Silver Standard is much better off financially than a year ago. With more than $350 million in cash, and we have assembled a solid management team with the right capability. And finally, we still have and continue to advance one of the best project portfolios in the precious metal space for our shareholders.

Let's get back to the summary of the quarter. Revenue for the quarter was $26.2 million, down from the second quarter, bringing us to a total of $133.5 million for the nine-month period. This lower quarterly result is primarily due to the renegotiation of concentrate sales arrangements to try and establish long-term contracts with a diverse group of concentrate buyers, including smelters. We are speaking with various buyers and smelters to ensure we can best leverage our production while managing off-site costs.

Long-term silver concentrate negotiations are expected to conclude in the first half of 2012 in line with seasonal renegotiation talks. And John DeCooman will provide an update on this shortly. Earnings were up largely as a result of the gain on the sale of Bowdens for $70 million, which was completed in September. It's an excellent value proposition for our shareholders. And operations contributed another $11.5 million to our earnings.

We ended the quarter with more than $350 million in cash as well as a 28% position in Pretium, valued at $246 million. Let me take a moment to provide an update on Pitarilla. As you are aware, our board committed $25 million to accelerating the advancement of our Pitarrilla mining complex in Mexico. We have begun to move ahead to develop what will be a larger world-class mine combining both greater up side potential for reserve expansion and a longer mine life.

We are planning to submit a full feasibility study to the Silver Standard board in 2012 and if approved we'll follow up with detailed design and construction and target production approximately two years from that date. This will represent a significant expansion to our silver production and moves us up among the most significant silver producers in the industry.

And finally, with regard to building our senior management team, we are in the final stages of recruitment of our CFO. I expect to make announcement on this during the next quarter. We have added Andrew Sharp as our new Vice President of Technical Services and Robert [Baird] to head up our Mexico business. Mexico will be a strong focus in 2012 as we move forward with Pitarrilla. Now with that I would like to turn you over to John DeCooman, who will provide you with an update on our concentrate sales.

Thank you, John. Difficult conditions continue to prevail in the silver market for concentrates. Treatment charges and refining costs have increased dramatically as a result of more production and limited processing capacity. Even so, we continue to see positive signs from our work this summer and fall. I'm happy to report that we have executed and begun to deliver into a short-term contract for 2000 tons of silver concentrates.

This, in combination with 2 additional counter-parties seeking silver concentrate sales for immediate delivery, makes a substantial dent in our current inventory. With respect to longer term sales agreements, we are actively engaged in discussions with several smelters. Samples were sent in October to Asian and European smelters primarily. We expect to reengage with those smelters in December when our samples are complete and they begin to finalize their 2012 tonnage allocations.

This along with the short-term sales will position Silver Standard and its shareholders for 2012 and beyond. Now I will turn the call over to Matt Freeman who will provide with you an update on our financials. Matt?

Thanks, John, and good morning, everyone. Before I address the Company's financial results, I will take a minute to look at our production and costs at Pirquitas. As mentioned the third quarter had its production challenges as we produced 1.6 million ounces of silver, down from 2 million in the second quarter. This means that during the first nine months of the year we produced 5.3 million ounces. That's still in excess of 4.2 million we produced in the same period last year.

We continue to focus on costs at Pirquitas and these costs are becoming more consistent in the normal course of operations. I believe we're really starting to benefit with various cost reductions for next year. That being said overall costs were higher in the third quarter, mainly as a result of significant repairs and maintenance costs. Given that many of our costs are fixed, our direct mining costs per ounce produced [were mainly] remains primarily driven by production volumes.

Thus, as a result of lower volumes in the third quarter, our cost per ounce is higher than we had forecast. Further, given the additional bore-mill down time that starts in the fourth quarter, we can expect to be quite high through the end of 2011 and until production returns to normal levels. The result of this is the direct mining costs during the quarter were $16 per ounce compared to $12 in the second quarter 2011, and $10 in the third quarter 2010.

For the nine months ended September 2011, direct mining costs per ounce were, however, consistent with 2010 at $13 per ounce. Total costs, including third-party charges and appreciation, were $25. This is actually slightly lower for the second quarter because of the lesser impact of treatment, refining, and transportation costs. Zinc production continues to be strong, and with 3.3 million pounds produced in the third quarter that brings our nine-month totals to 9.3 million pounds against our 12-month target of 10 million pounds.

Now turning to the financial results, we completed two important transactions during the quarter which had significant impacts on our results. Firstly, we've sold the Bowdens project in Australia, to Kingsgate for approximately $70 million. This comprised about $45 million in cash and the balance in shares of Kingsgate. For this we recognized a gain of approximately $50 million, and associated tax event of $15 million.

Secondly, we consolidated our interest in the San Luis project in Peru for costs of approximately $30 million. We paid Esperanza Resources $17 million in cash and returned to them 6.5 million shares of theirs that we owned, and gave them a 1% net (inaudible) return royalty. The consideration given after is recorded in the charge to equity.

Turning to our P&, the third quarter 2011 we reported net income of $22 million or $0.27 per share, versus a net loss of $10 million or a loss of $0.13 per share from third quarter 2010. This compares with net earnings of $46 million or $0.57 a share for the previous quarter. 2011 year-to-date net income was $78 million or $0.97 per share, compared to a net loss of $23 million, or a loss of $0.30 per share for the same nine-month period last year.

We did not make any shipments of silver concentrate from early August until the end of the quarter, and as a result we only sold 0.7 million ounces of silver in the period. As I'm sure you're aware, the price of silver has remained strong, and therefore on those shipments made, we achieved provisional gross second prices in excess of $39 per ounce.

Zinc sales continued as projected under existing contractual arrangements, and combined with those silver ounces sold, enabled us to recognize $26 million of revenue after treatment, refining, and transportation costs. As both John's have described, we're in negotiations for long-term sales contracts and are very pleased to report that contracts sales have resumed on a spot basis in the early part of the fourth quarter.

Our cost of sales for the third quarter is $15 million, resulting in positive earnings from mine operations of $12 million, on a gross margin in excess of 40%. It is also noteworthy that despite reduction reserve estimate at Pirquitas we concluded there's no impairment of assets.

In terms of cash and cash equivalents we ended the third quarter with $356 million. Although this is a reduction of $13 million for the previous quarter, due to the lower level of sales, it remains a significant increase from the $36 million we figure we had at this time last year. So, in summary we have strong balance sheet with significant cash resources and other liquid assets, our debt-to-equity ratio of less than 10%, which means we're well- positioned to advance our project portfolio of our opportunities. Now over to Joe to provide an update on operations.

Thanks, Matt. As John mentioned, the third quarter operations at Pirquitas proved to be challenging, as we experienced 24 days of unscheduled maintenance downtime to rebuild the ball mill gearbox. We had an excellent two-month continuous run when we restarted the plant early in the quarter, but had to idle the plant again in September when vibrations exceeded safe limits.

In this final repair we were able to rebuild the unit to new condition with a complete set of gears, shaft, seals from the Siemens factory. The plant has returned to production this week and is now operating again at forecast rates. It's been frustrating trying to nurse along the damaged gearbox over the last several months, and I'm quite relieved now to have it rebuilt like new and operating without any vibration.

This legacy issue was the second and final of the two pieces of our used equipment. This was unfortunately not easy to correct, as of delivery time for the new parts was seven months. During the two continuous months that the Pirquitas plant was operated in the third quarter, we averaged over 26,000 ounces of silver per day. It's bittersweet to see the capacity we demonstrated this year and to recognize that we were on track to produce to guidance, had the gearbox not been a problem. It does show the capacity we can expect from Pirquitas in the coming year.

The mine itself operated well during the quarter, actually exceeding total ore production forecast by 200,000 tons. We're also extremely pleased with the advances we've had in the area of flotation recovery. The increase in recovery to 83% for the quarter versus design of 78% was a major factor in our daily production rates, and will provide a significant upside to our production in the future.

Improved crushing, consistent ore grade, improved reagent and better conditioning have enabled to us achieve the higher recovery. Overall we feel that we've clearly demonstrated that the mine and plant are capable of operating at 8 million to 10 million ounces per year.

Another bright spot for operations has been zinc grades and recoveries. We've produced 3.3 million pounds of zinc during the quarter for a total of 9.3 million pounds year-to-date, which puts us well on our way to exceeding our forecast for 2011 of 10 million pounds.

I would now like to present more detail on our revised resources and reserve estimate for Pirquitas. We've made a decision to take a conservative approach in these estimates, and we have a strong expectation about our exploration success and operations improvements for the future.

Our new resource estimate includes 32.8 million tons of measured and indicated, averaging 142.2 grams per ton, for a contained silver of 150.1 million ounces, and 7 million tons of inferred resource at 99.8 grams per ton containing 22.5 million ounces. Total proven and probable reserves is 16.7 million tons, averaging 173.7 grams per ton for contained silver of 93.1 million ounces.

Significant to the change from our prior estimate is the 18.6 million ounces of silver that we have already mined. The balance is attributable to the factors John has noted. A better understanding of the geology and mineralization, higher operating costs from Argentine inflation, and increased entailing disposal cost, and the decision not to consider a credit for the production of tin until we settle upon a processing method.

Now I would like to explain the factors and how we're addressing them starting with geology. Our comprehensive drilling program in the area of the open pit, has determined that the stock work silver mineralization that exists between the high-grade veins in the upper parts of the deposit becomes less prevalent and of an uneconomic grade in the lower levels of the deposits.

This has resulted in a portion of our previous reserve being reclassified as indicated resource. Offsetting part of this change is a silver and zinc-rich frigid zone some 200 meters north of the open pit area in an area we call Cortaderas. Our exploration team discovered this significant resource this year and our Chief Geologist, Ron Burk, will be describing this discovery and other exploration targets, later in this talk.

It's worth noting here that an inferred resource containing 22.5 million ounces of silver and 360 million pounds of zinc has already been estimated for the Cortaderas area. Most significant in impacting our cost has been Argentina's inflation rate. Unofficially estimated to be in the range of 24% annually.

This has been a challenge for all mining companies operating in the country. Rapid inflation of the peso-based portion of our cost has driven our cost per ounce up. While we can't control Argentina's inflation, we have noted that the Argentine peso has recently come under pressure in its exchange are the US dollar. If the peso weakens, as current trends indicate, it would it improve Pirquitas' cost structure.

We have taken a number of steps internally to address rising costs. Among them, we have expanded our mining fleet to replace costly contract haulage of waste rock. We've dramatically improved plant silver and zinc recoveries to increase production and reduce unit operating costs. We've increased plant operating availabilities and efficiencies, and we've negotiated long-term reductions in principal supply and service contracts.

We've also been evaluating the lifecycle costs of our current tailings disposal facility. The area adjacent to our plant where the current facility is located is not optimum from a cost standpoint. We feel we have significant opportunities to reduce the cost of tailings disposal in the operation, and have begun an evaluation of the potential for dry stack disposable tailings rather than continuing to construct costly dams and lined impoundments. We hope to have this opportunity better defined within the next six months.

Now I will address the decision not to include the tin credit. The sulfide tin mineralization in the Pirquitas ore deposit is distinctly different from the oxide tin ores typically mined in the Bolivian tin belt to the north of us, and will require a different process for recovery. We have not given up on tin and there are other mines successfully producing tin from sulfide ore.

We simply don't feel comfortable including it until our way forward is better defined. During the third quarter we continued evaluating tin circuit alternatives focusing on tin mineralogy. Before I can finish my comments on Pirquitas, I want to add my congratulations to the mine, which achieved a million safe man hours for the first time in October. I'm proud to say today that Pirquitas is one of the safest mines in Argentina.

At Pitarrilla we're advancing the development activities which our board of directors approved during the quarter. Our budget is $25 million to complete a bankable feasibility study on the Pitarrilla mining complex and to advance critical infrastructure and permitting efforts needed to fast-track the project.

During the quarter we advanced design at construction camps, as well as progressing development at water sources, tailings disposal facilities and access roads. Our engineers are conducting mine and plant optimization and are commencing with basic engineering studies. We've collected all baseline environmental data.

Our strategy of a combined project on both oxide and sulfide resources on our huge deposit will build a larger, more robust mining operation. We continue on our current time line to substantially move the project forward in 2012. At our San Luis project we've reached agreement with the Cochabamba community for rights to operate on their land. Cochabamba covers roughly one-third of the San Luis project area and includes the plant site.

We have also entered formal negotiations with the [Ehcache] community which covers the remaining two-thirds of the project. In October, Ehcache voted overwhelmingly in favor of the San Luis project. REIA approval advanced as we completed the second round of questions from the ministry of mines and are projecting approval of our REIA in the near future. In summary, I'm pleased to have Pirquitas up and running at forecast rates again, and I'm extremely excited about the progress of development at both Pitarilla and San Luis. Over to you, Ron.

Thank you, Joe. At Pirquitas exploration drilling that was completed on the property beyond the limits of the San Miguel open pit has proven successful and has given the Company confidence that a proportion of existing resources will be converted to reserves, and that new resources will be discovered during the life of the mine.

In addition to this year's program of infill drilling, about 60% of it which was done during second and third quarters, another 1,837 meters were drilled at an exploration target located just 200 meters north of the San Miguel open pit in the Cortaderas Valley. The main target at Cordaderas is represented by steeply plunging breccia body where the breccia matrix is composed of silver bearing iron and zinc sulphite mineralization.

To date, nine relatively closely spaced drill holes have tested a breccia body. Results from this drilling are very encouraging. A highlight has been Hole 214 which intersected 218 meters creating an average of 473.3 grams of silver per ton and 8% zinc. Based on the drilling done to date we have been able to delineate an inferred metal resource for the Cortaderas breccia of approximately 2 million tons, creating an average of 152 grams of silver per ton and 5.4% zinc for 9.9 million ounces of contained silver.

Vein hosted mineralization extending westward from the breccia is estimated to contain an additional 12.6 million ounces of silver and 5 million tons of inferred resource creating an average of 78.6 grams silver per ton and 1.1% zinc. The mineralized zones in the Cortaderas valley are open to the West [inaudible depths] and will be thoroughly drill tested in 2012, with the goal being to increase their size and also to have them reclassified as indicated resources. In addition, other zones of silver-enriched breccia have been identified immediately south and southwest of the open pit, and these high potential exploration targets will be drilled in the coming year along with the targets at Cortaderas.

In Mexico, two major drilling [contains] were completed in the third quarter. At our advanced Pitarrilla project assay data from 13,800 meters of infill drilling that was done on zones of oxidized silver mineralization found within 200 meters of surface have now been incorporated into an updated mineral resource model of this very large silver deposit.

This new model, which has significantly increased the silver resources at Pitarrilla is being utilized in the mining-related studies currently being done for the feasibility study expected by mid-2012. About 16 kilometers east of Pitarrilla at our [Nassas] project, we completed approximately 12,600 meters of diamond drilling to test several high-potential precious metal targets in an area distinguished by its widespread hydrothermal alteration and numerous gold and silver occurrences.

The bulk of this drilling was done on the Navidad Claim Group, one of three properties that constitute the project, and a number of the drill holes intersected significant gold and silver mineralization. However, it was decided that the results obtained by these boreholes are insufficiently positive to motivate the Company to continue with its option to acquire the claims.

Notwithstanding our decision on the Navidad property, the geological information provided by this years exploration campaign at Nassas, strongly supports our view of the area's potential for discovery of a deposit of precious metal-rich mineralization similar to that which is found on the Pitarrilla property. Our geologists will be using this information to carry out future drilling on our other two Nassas properties, which are wholly owned by the Company.

Apart from completing the three major drilling campaigns and conducting detailed resource modeling on the Pirquitas and Pitarrilla deposits, the Company's geologists have been advancing the readiness of several of our exploration properties in Mexico, Peru, New Mexico, and Argentina for drilling programs that are planned for execution in 2012.

At the forefront of these projects is San Agustin which is located in Durango, Mexico. There, our planned drilling program will be testing the potential for an open pit operation that would mine and process oxidized gold mineralization that is already identified on the property. An indicated mineral resource at San Agustin presently contains 1.5 million ounces of gold and 47.8 million ounces of silver. With that, I will now hand the call back to our CEO, John Smith for concluding comments.

Thanks, Ron. To sum up at Silver Standard we are expanding and optimizing our production on what is one of the largest silver resource bases in the world and we're building a world-class team to leverage these exciting assets. The reserve change at Pirquitas is a point in time. As a prudent operator we have taken the necessary steps to adjust to new facts.

Fortunately the adjustment will have no impact on our volumes over the next six years and our objective is to focus on exploration opportunities and strongly manage our costs at Pirquitas. We remain in a very strong position with large cash balances, a strong exploration team, and a track record of significant progress towards a multi-mine platform that will provide continued growth as we move forward.

Operator that concludes our prepared remarks and we'd be happy to open the lines for questions.

Thank you, Mr. Smith. (Operator Instructions) Chris Lichtenheldt of UBS.

Thanks for taking my questions. I have a few questions. First, on the expected mine life and the 8 million to 10 million ounces that you talked about at Pirquitas, can you just tell me what sort of throughput you're expecting? Only because I've noticed the grade has come down on the reserve a little bit, so if we look at the grade and use the recovery around 80% it would look like to get to 8 million or 9 million ounces it would have to be a significant improvement in throughput.

Our design, it remains the same, milling 4000 tons per day. We are undertaking some steps to maximize and improve that but I believe the forecast is for 83% -- 80% to 83% recovery in the coming years.

Okay, assuming my math is right if I use 80% recovery, I would need like a 5500 tonne per day throughput at the reserve grade to get to even 9 million ounces so does that mean you expect grades to be initially better and then sort of decline over the mine life as you see it now?

No, I think what you need to be careful with in your math is that you are not using the upgrade. We're actually crushing much more than. We're crushing between 5,000 and 6,000 tonnes per day and upgrading the grades through our jig circuit.

Right, okay, okay, okay.

I can talk to you about that math later but --

No, that's the difference. Okay. So 5,500 is what you're crushing roughly.

That's correct. So our grade into the mill is much higher.

Okay, thanks. So, second question, of the reserve reduction that you stated at Pirquitas of around 100 million ounces, would it be possible for you to quantify the different reasons that you gave? At the top of the list in your disclosure, you said you talked about the mineralization at depth sort of petering off. Can you quantify of the 100 million how much that would account for or even just rank the different reasons if possible?

Hi Chris, it's John. What we did was we basically did a whole new resource and reserve model, basically to give us a platform to go forward with mine planning on an annual basis, and it's usually annually you do these exercises. We put a lot of time and effort into making this a very robust platform going forward and taking into account over two years, or three years, a lot of changes in terms of cost structure and understanding of the geology. We haven't done a reconciliation back to the old one because, frankly, that was done at a point in time when a whole set of assumptions and circumstances that were relevant when that was done back in 2008. We're now in 2011. We've kind of redone a whole new model going forward. The reasons that we've given in the MD&A and the press release are pretty much out there listed, kind of ranked in order of priority and importance.

Okay. Yes, that's what I figured. So that's helpful. Okay, I think that's it for me right now. Thanks a lot.

Alright, Chris, thank you.

Andrew Kaip of BMO Capital Markets.

Good morning, Andrew.

Good morning John. Following up on Chris' questions, first of all, do you provide information on the amount of waste that is within the new reserve pit?

Joe?

I believe our average ratio, if I'm not mistaken, for that life of mine is around 4 to 1 or 4.5 to 1.

4.5 to 1. And then, just looking at the production of 8 million to 10 million ounces per annum and the life of mine strip ratio, can you tell us whether it's a relatively uniform production profile or is it lumpy and where might it be lumpy?

No, actually, as most typical with surface mines, it's a cone-shaped pit and as we -- with higher ratios early on and lower ratios towards the end. So we'll be idling some of our mining fleet in the latter years.

Can you get us a sense of what kind of range for stripping over the next couple of years we should expect?

Andrew, we are working just now in our 43-101 update, and we'll have that out within 45 days which will give you the full detail.

Okay, alright.

That should help with that.

But we should expect that gradual decline in the strip ratio towards the end of the life?

Yes, that's right.

That is correct.

Alright. And then with respect to production averaging 8 million to 10 million ounces, are initial years going to be higher production and gradually tail off, or can you give us a sense of the mine plan in that regard?

Actually, the production rate through the plant remains fairly stable for the six and a half years that in range of 8 million to 10 million. Then as typical with most mines it tapers off over the final years as we process stockpile's.

Okay.

And Andrew, just to make a point, this is a point in time estimate that we've done. We envision that over that six years we'll do extensive exploration activities. We'll hopefully bring more resource in. So ultimately every year we will update this mine plan, it's very dynamic for us.

I certainly understand that. But we're looking at it -- we're looking at it now moving forward. And then with respect to the cost parameters that were used in the reserve, how much of that was actually -- how much of that over 50% increase in operating cost do you attribute to inflation? Just peso inflation?

We'd have to give you a more detailed answer on that one, Andrew. Obviously there's between 2008, 2011, and inflation regime in Argentina, there's been a fair bit of step up. So we have been mitigating our costs to rebalance against that inflation but at the same time, we've added increments. You know, we've an additional cost for tailings impoundment on a more conservative basis, and we have taken out tin recovery credit. So there's kind of a mixture in there, but -- so from an inflation point of view it's had a fairly hard effect on our cost structure.

Okay and then one final question. And that's just regarding the importation in Argentina. You're the second company that's come out and said there are issues of importing material or equipment. Can you give us a sense is this going to be something that we're going to have to expect moving forward, or is this just a short-term thing related to the elections and the change-over of the government?

Andrew, clearly our hope is that it's a short-term thing with respect to the elections. We're proud here to kind of been a leader among the other members of the Argentine industry and demonstrate our progress towards developing local suppliers, which was one of their goals. Things have normalized quite a bit in the last few months, and I'm hoping that it won't continue in the future.

Any risk of the new equipment for the gearbox not making it in, in January, or what are your thoughts on that?

We've actually not had any problem at all bringing in new equipment. It's mostly been supplies and spares that they've been looking at. Again, trying to provide an incentive to produce what we can locally. New equipment, we really haven't had a problem with. We got our four new trucks in with no trouble.

Okay. Alright. Thanks very much.

Thanks, Andrew.

Craig West of JMP Securities.

Good morning, guys. Just a couple more questions around the resource re-estimation. I think most of them have been answered, but can you maybe attempt to quantify some of the influencing factors there? For example, how much depletion has there been since the last resource estimate? Maybe give us an idea on how the cut-offs change from both forward to now. I guess that will address how costs have changed and how that's impacted the estimates.

This is Ron Burk here, Chief Geologist. With regards to the method that the resources were estimated, the previous resource that was estimated in 2008, reported in 2008, was based on a silver equivalent basis of 50 grams per ton, and that was done using economic parameters that were current at the time. The economics of tin were incorporated in that silver equivalent calculation. For current mineral resource estimate we're using a simple 50 grams per ton silver cut-off. This allows us to give our resource is then estimated on a geological basis.

Okay, and any idea on depletion or how much has been taken out since the estimate that we had, since the most recent update?

Craig this is Joe Phillips. We're showing 18.6 million ounces in depleted during the operating of the mine since its inception.

Okay. My other question is on the gearbox issues that you guys have worked your way through. By the sounds of things I guess it went down through the end of September for the rebuild, and as you mentioned it was up and going. Could you just give us the number of days that it's been down during the fourth quarter?

24 days during the quarter.

During Q4 it's been down?

I'm sorry, during Q4, four days.

Four days? Okay, started back up four days into Q4?

No, excuse me. Four days into November.

Into November. So it was down for most of -- all of October and a little bit into November. Just trying to get an estimate for the quarter.

It started operating on Saturday.

Alright. That's all. Thank you.

Thanks, Craig.

Brian Quast of CIBC.

Good morning, guys. Yes, I've just got a couple of questions here on the concentrate sales. Obviously you sold a lot less than you produced, and you were talking about having that short-term contract in place. How much of your inventory have you sort of worked through, how much is left, and maybe give us a bit more color on what the spot sales are going to look like going into your long term -- I know you gave us some color already but I want to be absolutely clear on this.

I'll let Matt speak to the inventory. He's got a better grip on some of those details, but overall, the 2,000 tonnes is a prompt delivery. So we're able to start working that down immediately which we're already shipping into now currently. What we want to do is continue to work with a number of additional traders, not just one trader, for that short-term purpose. So I think it's still feasible that we'll continue to move through towards the first quarter on that.

And I guess it's probably hard to comment on, but would you say that the terms that you're getting on these spot sales would reconcile reasonably well with other commercial agreements in the area? Let's go with that.

Yes, on a spot basis, that's accurate. That's why we want to get closer to the smelters on a long-term basis.

And if you can give me a bit of color on how much inventory you've worked through and sort of the prospects for seeing, let's call it an extra almost million ounces coming through the income statement in Q4.

In terms of the inventory levels, we probably had around 4,000 tons the end of September, and we haven't been producing through October so that stayed fix. If we sell the 2,000 tons this quarter, we'll obviously halve that and then it will depend a little bit on finding of additional spot sales as to how quickly we grind down the inventory that we're producing now in Q4.

Okay. Thanks a lot, guys, that's it for me.

Thanks, Brian.

Doug Dyre of Peak6 Advisors.

Hello, gentlemen. Now that it will be running at a normalized run rate fairly soon, and taking into account some of the recent inflation that you've seen in your costs in addition to increased royalties, can you give us some guidance onto what cash costs would be now on a normalized run level? Thank you.

We are looking at cash costs similar to the guidance that we've previously provided on a normalized basis. We're in the middle of our boxing prices for next year so we'll be working on guidance over the next few months.

Doug, it's John. The cash costs that we saw earlier this year, is where we'll get to -- if you take back -- most of our costs through this year on an absolute basis have been pretty much as we budgeted. The only exception has really been the additional costs of the ball mill repair. So we'll start to get back to that cost structure fairly quickly once we step through the end of this year into 2012.

Alright, thank you very much.

Thanks, Doug.

Adrian Day of Adrian Day Asset Management. Please go ahead.

Yes, good morning. I didn't see anything in your press release this morning concerning the G&A, and I could have missed it, but the last I looked, the G&A had gone up quite a bit over last year. I don't know if you can tell us a little bit about why costs have gone up G&A, and what do you see going forward?

Yes, Adrian, it's John. The cost of G&A has been pretty much -- it's flat, but we've been building our people clearly as we build the teams to increase from a project basis. So there's been some building out of people, but our G&A has ostensibly been flat.

Okay, okay. So it's mainly people, and that will obviously stay the same then going forward.

We'll add more people as we build out so if you think just now we're building out a project team for Pitarrilla. From a technical services point of view, we've built that team up with Andrew coming on board and others this year. We have probably some more recruitment to do in our head office, but it's going to be in the sort of singles to tens in terms of --

Okay, great. Thank you.

Steve [Perlow] of PJS Capital. Please go ahead.

Good morning, everyone.

Good morning.

Most of my questions have been answered but I wanted to ask, you guys ended the quarter with about $356 million in cash and over $600 million in cash and equity investments. Your current market cap is only maybe a little bit over a billion after the share reaction today. And just wondering, given your strong balance sheet and your tonic level evaluation that we haven't seen since 2008, what's your thought process or is there a discussion on using some of the excess cash to buy back shares at this time?

Hi Steve, thanks, good question. Clearly from our point of view we have got that strong balance sheet, strong cash, and strong investments. But pretty much we look to use that to build out our project portfolio. But as time goes on we'll review all the right things we should do in the best interest of our shareholders, and do so accordingly. But our long-term plan, we will be sticking to which is really utilizing those cash funds to build out our project portfolio and add the real shareholder value by delivering against those.

Okay, thanks.

(Operator Instructions) Misha Levental of Dahlman Rose. Please go ahead.

Hi. I was just wondering what sort of zinc grades and recoveries you got for this quarter and if those levels are going to be sustainable from here on out. And if the increase in zinc production is going to be one of the main determinants in getting your costs to your projected guidance for the year?

Okay. Don't hold me to this but I believe our average zinc grade was on the order of 0.83%. It's worth mentioning that the nice results we've had in zinc are one of the fruits of our exploration teams finding a fairly rich breccia within our existing pit. I'm pretty optimistic about zinc and also look forward to Ron and the team developing more of the Cortaderas area which I think will have a continuity of zinc being a major contributor in our production in the future.

Okay. Okay, thanks.

There are no further questions at this time. Please continue.

Well, thank you, Operator, and thanks to everybody for participating. We look forward to keeping you updated on progress that we are making at Pirquitas as well as our project and exploration portfolio. So thank you very much for joining the call, and have a good day.

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