SSR Mining Inc (SSRM) 2012 Q4 法說會逐字稿

Good day everyone and welcome to the Silver Standard's fourth-quarter 2012 year-end finance results and product 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.

Thank you, Kevin. Good morning, ladies and gentlemen. Welcome to Silver Standard's fourth-quarter 2012 conference call during which we will provide a review of our financial performance and give an update on our business. Joining me on the call this morning is Greg Martin, our CFO; Ron Burk, Vice President, Exploration. Also present is John DeCooman, Vice President, Business Development and Strategy; and Andrew Sharp, our Vice President, Technical Services. We also welcome into the Company, Alan Pangbourne, our new Senior Vice President of Projects.

Our financial statements and Management's discussion and analysis have been filed on SEDAR and are also available on our website. To accompany our comments today, there is also an online webcast and you'll find the information on this in our news release relating to the call. We will be making forward-looking statements today and I refer you to the disclosure accompanying our slides, news release, and also on SEDAR. Now we will review progress and driving value within our business and positioning us strongly for the future.

In my time as CEO of Silver Standard we have focused on unlocking the value from our business. Each year as a Management team, we have systematically planned and delivered with this objective in mind. In 2010 and '11, it was ensuring funding was in place to allow us to develop the business and address the skills and experience we needed to be a truly successful mining company, and that included both technical and commercial capability. In 2012, we focused on operating Pirquitas to plan, quarter-by-quarter, notwithstanding the challenges in Argentina. We also made a significant step forward in driving value from the portfolio, with the completion of the feasibility study for Pitarrilla, a large long-life mine that underpins our future.

As we step into 2013, we will keep delivering at Pirquitas and we are well funded for our development opportunities. The convertible debt that we raised in January not only allows us to repay the existing convertible note due in March, but adds to our already strong balance sheet for Pitarrilla construction. We have the people, the projects, a unique portfolio, and an enviable balance sheet -- the right elements for a great business. Now, let me review our operations development activity and I will start with Pirquitas mine in Argentina.

Our operating team at Pirquitas have delivered strong results allowing us to exceed the high end of the 2012 production guidance. We have had exploration success in the Cortaderas Valley, expanding the resource, and identified identify future targets for 2013. Mining costs for 2012 were $12.61 per ounce of silver produced, in line with our guidance $11.85 to $12.85 per ounce. Costs are always a challenge in a high inflationary environment but our Management team in Argentina completed the year within guidance range. In 2013, cost management will continue to be a major focus area.

Over the past two years we have successfully worked to make Pirquitas a reliable steady-state silver mine with consistent operating performance and I am pleased to report that we enjoyed our fourth quarter of strong production. With 2.3 million ounces produced this quarter, we achieved a full-year production record of 8.6 million ounces. Zinc production for the quarter was 3.2 million pounds, bringing our full year to 11.2 million pounds.

Mining operations continued strongly, slightly exceeding forecast material movement for the quarter and for the full year. We have now mined Phase 1 of the San Miguel pit and are advancing new benches in the Phase 2 of the pit shell. Operations and maintenance crews continued to maintain a high availability and efficient use of our mobile equipment, notwithstanding the challenging importation regime for critical parts and supplies into Argentina.

In 2013, as we advance into Phase 2 of the San Miguel pit, we mine through oxide and transition ore to reach the sulfides at the bottom of the pits. Managing this change in mining and processing is critical to our success in 2013, and hence the reason our 2013 silver production guidance is unchanged from 2012. The quantities of sulfide ore are expected this to increase through the year with the main challenge being quarter one and quarter two. And on the marketing of concentrates, we are now delivering into our new sales agreement allowing us now to fully optimize margin and value.

At our Pitarrilla project in Mexico we completed the feasibility study and delivered the 43-101 report to the market in December. We are very excited about this very significant project with which represents an opportunity for the Company to build one of the largest silver mines in Mexico in one of the world's best business climates for mining. This is also a long-life mine of 32 years, with reserves totaling 479 million ounces of silver. It will produce 15 million ounces per year for the first 18 years of its life. With net cash costs of less than $11 per ounce in real terms, this is, by any assessment, a significant project in the silver space.

The cost to construct a mine is $741 million, and that includes $157 million of pre-production operating costs and $131 million of pre-production revenue. At $25 per ounce silver price, the project delivers economics of $737 million NPV and an IRR of 12.8%. At the higher silver prices we have seen in the past six months, the project can return an IRR of over 21%. So we are now targeting a construction decision late this year with current activity focused on permitting, securing the remaining surface rights, finalizing financing, and setting the project up for successful construction. Having Alan join us as part of the Executive team, this now provides proven and experienced project leadership capability and we look forward to delivering this cornerstone project for our shareholders.

At San Luis in Peru, we received government approval for our EIA for the mine and we are now focused on obtaining the Ecash community agreement to proceed. Formal negotiations with this community are now well in train and a social baseline study was completed in December 2012, which gave us access to the Ecash villages allowing us the opportunity to discuss the project and benefits with them. This was a significant step forward and that agreement will allow us to put the San Luis project in the queue for development. In exploration, while field work continued through the fourth quarter, the main focus was on assessing and modeling. Ron will take you now through these activities.

Thank you John. In terms of exploration activities, particularly drilling, the fourth quarter proved to be the most productive for the Company in 2012. We completed a major drilling campaign on the Pirquitas mine property, significantly enhanced our geological and resource models that form the basis of our positive feasibility study for the Pitarrilla project, and advanced the potential of our property portfolio. Drilling programs were undertaken at three of our properties in Mexico, northern Argentina, and the southwest United States. In addition, in order to strengthen our capacity to identify and explore mineral projects in a highly effective manner, we added two seasoned explorationists to our team, a chief geologist and a director of exploration.

Our 2012 brownfields exploration program at Pirquitas was completed in the fourth quarter with a total of 52,800 meters drilled in 142 diamond boreholes. This drilling campaign was success-driven and the final meterage more than doubled the original program. The bulk of this drilling was done in the Cortaderas target area, centered about 500 meters north of our San Miguel open pit where modest inferred resource had been defined in 2011. The 2012 drilling campaign at Pirquitas was a success in that it substantially increased the Cortaderas mineral resource and allowed a significant portion of it to be classified as indicated.

Our recently completed resource block model for the Cortaderas deposit estimates an indicated mineral resource of 3.6 million tonnes, averaging 137 grams per tonne silver and 5.1% zinc. This translates to a contained metal resource of 15.6 million ounces of silver and 403 million pounds of zinc, classified as indicated. In addition, we estimate there are 14.1 million ounces of silver and 326 million pounds of zinc in an inferred mineral resource at Cortaderas, consisting of 2.7 million tonnes with an average grade of 162 grams per tonne silver and 5.4% zinc.

Ultimately, our goal for exploration at Pirquitas is to discover and find new mineral reserves. The combined indicated plus inferred resource at Cortaderas is currently being evaluated by our technical services team to determine how the deposit can be best economically mined and processed. In 2013, our exploration at Pirquitas will focus on assessing the potential for additional silver-zinc resources east of the open pit.

We have planned a minimum of 7,000 meters of diamond drilling that will probe at least four prominent gravity survey anomalies that we defined in 2012 and which we interpret to be possible zones of sulfide mineralization. The body of iron and zinc sulfide mineralization forming the Cortaderas deposit is, in fact, marked by a strong gravity anomaly that extends a few hundred meters beyond the easternmost Cortaderas drill hole.

At Pitarrilla, our 2012 drilling program of 67 diamond boreholes benefited this key project in two ways, as the results from 50% of the holes give us a modest increase in the total silver resource of the deposit, while the other drill holes provided important geostatistical information that was incorporated in the engineering work done for the feasibility study. Another important result of the 2012 drilling at Pitarrilla was the intersection of two of the drill holes of significant silver-lead-zinc mineralization between the deeper portion of the main Breccia Ridge Zone and the South Ridge Zone. These two intersections of mineralization provide encouragement for future expansion of the deposits reserved within the planned pit shell.

The drilling campaigns completed in 2012 at Pirquitas and Pitarrilla accounted for 94% of the 74,200 meters that were drilled by the Company last year. The remaining 4,400 meters of drilling was split between our Saddleback project in New Mexico, the Diablillos project in Argentina, and the San Patricio project in northern Mexico. Diamond drilling at these three projects started late in the fourth quarter with the programs at Saddleback and San Patricio continuing into January. The 19 drill holes completed at Diablillos resulted in the discovery of two new zones of gold and silver mineralization which warrant follow-up drilling.

At the San Patricio project the eight-hole program was successful in delineating a mineralized structural zone that is more than 650 meters long with a vertical extent of more than 100 meters and a thickness estimated to be 5 meters to 10 meters. To date, our best result at San Patricio comes from Hole SPD-01 which produced a 23-meter long interval, grading 132 grams silver from 70 meters in the hole, followed by a 29 meter section from 362 meters down the hole that average 107 grams per tonne silver.

A key attribute of Silver Standard over the past decade has been its ability to execute successful exploration programs that have resulted in significant organic growth. In 2013, we plan to continue on this path. With the drilling campaigns we have planned at Pirquitas and Diablillos, we anticipate finding new resources that should add significant value to these projects. We will be drill testing high-potential precious metal targets on at least three properties within the central Mexican silver belt where we believe our chances are very favorable for making important new discoveries.

And to round out this year's objectives, our exploration teams will be generating new opportunities through generative field programs, assessments and acquisitions of third-party properties, as well as early-stage evaluations of properties that exist in our own extensive asset portfolio. Now, over to you Greg.

Thanks, Ron, and good morning everyone. The fourth quarter concluded a successful financial year for Silver Standard. We closed 2012 delivering on our objectives -- record silver sales resulted in significant year-on-year increase in revenues; we exceeded our production target and met cost guidance, demonstrating the stability brought to our business, both of which led to a substantive increase in our liquidity. We enter 2013 well positioned to a continue on this success.

Sales of 3.2 million ounces of silver in the quarter, a record for the Company, resulted in revenues of $86.8 million, despite a negative valuation adjustment on outstanding accounts receivable in the quarter of $5.3 million. This positive quarter brought our full-year sales to 9.4 million ounces, which drove revenues of $241 million, an increase of 63% over 2011. For the fourth quarter, we realized silver prices of $32.69 per ounce. However, with silver prices dropping, towards the end of December to $29.85, this downward pricing impacted the negative valuation adjustment of outstanding receivables. For the full year, we realized silver prices of $31.13 per ounce, right at the average spot price of silver for the year.

Strong sales drove our year-end silver concentrate inventory to its lowest level of the year, closing at 3,600 tonnes containing 2.1 million ounces with a book value of approximately $35 million. Strong revenues led to fourth-quarter income from mine operations of $16.6 million, the highest quarter of the year and $20 million higher than the comparative quarter of 2011. For the year, income from mine operations totaled $46.1 million, a strong outcome driven by our improved production, performance, and sales. For the year, net income totaled $54.8 million, or $0.68 per share.

The net income was impacted by a number of items, including higher planned exploration expense at Pirquitas, Pretium-related gains, increased accretion on the Pirquitas ARO provision, and the recognition of a deferred tax asset on Pirquitas, all of which are described in the financial statement disclosures. Direct mining costs in the fourth quarter totaled $12.52 per ounce of silver, approximately 4% lower than in the third quarter, bringing our annual direct mining cost to $12.61 per ounce, well within our guidance range of $11.85 to $12.85 per ounce. The Pirquitas mine showed solid cost performance in the quarter, aided by strong production.

As announced on January 8, we have revised our presentation of cash and total costs to make those metrics more useful for investors to assess our performance and to be consistent with other concentrate producers. The principal change is reporting cost on a payable ounces sold basis, instead of on a production basis. As a result, cost of inventory sold becomes the main determinant of site-based cost. Additionally, the volatility that had existed in our reported cash costs, due to the varying relationship between produced ounces and sold ounces is eliminated.

The export tax accrual, a non-cash item, has been reclassified from cash cost to total cost, to better reflect the nature of this accrual. As a result of this change, we will no longer be providing direct mining cost per ounce guidance going forward, but as noted, we have provided cash cost guidance. Consistent with this methodology, cash costs for the fourth quarter totaled $19.12 per payable ounce sold, bringing our full-year cash cost to $19.14 per payable ounce sold. Total costs for the fourth quarter were $27.31 per payable ounce sold, and $27.06 per ounce for the full year.

We continued to strengthen our already substantial liquidity position in 2012. Our cash position in the year increased by $38 million to $367 million, which is significant, considering we also invested $62 million in our property portfolio and $13 million in expensed exploration. Our trend of predictable and consistent production at Pirquitas, supported by a stronger, diversified, and higher value sales strategy is demonstrated by the growth in operating cash before changes in working capital, from $7 million in 2011 to $42 million in 2012. Cash generated by investing activities totaled $32 million, as the realization of continued proceeds from the Pretium spin-out, value-added tax recoveries, and asset-backed commercial paper sales more than offset the investments in our portfolio.

2012 saw significant investments in the properties, as we completed the Pitarrilla feasibility study, a tailings lift at Pirquitas, and remained aggressive in our exploration activities. The strength of both our operating assets and our investment assets to continue to provide the funding required to invest in our business was evident through 2012. Excluding the reclassification of the 2008 convertible notes to a current liability, our working capital position strengthened by $118 million during 2012, showing the overall strength of our business. Even with the reclassification, our working capital position remained very strong at $379 million at the end of December.

Our interest in Pretium remains a further source of value for the Company. Our equity interest has just dipped under 20% due to the recent financing, but it remains an important opportunity for our shareholders. The Pretium stock has come under pressure like many mining equities recently, and with the current market value, our stake is approximately $145 million. Subsequent to quarter-end, we further strengthened our financial and liquidity position by taking advantage of strong credit markets to issue $265 million of senior unsecured convertible notes.

The issue refinances our $138 million of 2008 convertible notes, and provides capital to advance our development projects. The notes generated significant interest in the market due to the opportunity we have, and investors recognized, to unlock significant value from the development portfolio. The notes have an interest rate of 2.875%, significantly lower than the existing 2008 notes, are for a minimum term of seven years, and are convertible at $20 per share, over 42% above the price at issue. The financing provides us with a strong financial position for an important year in 2013, as we progress Pitarrilla and San Luis through to construction decisions and it maintains our capacity to act on opportunities.

We saw some pressure on the share price upon issue, as one would expect through a convertible offering, which has certainly been amplified by the weak equity markets in the mining space. However, we take these strategic decisions to position the Company for success and remain confident the current situation will normalize as we continue to execute our strategy and deliver the portfolio. In early January, we issued our 2013 guidance. We are expecting to produce and sell between 8.2 million to 8.5 million ounces of silver, similar levels to 2012. The first quarter will be the focus of the transition in the pit, with ore delivery gradually improving through the year, as we fully source ore from the Phase 2 area of the pit later in the year.

Zinc production is expected to almost double to 20 million pounds next year, a planned increase as we mined a higher proportion of the zinc-rich Potosi area. It provides us high leverage to zinc if prices rise through 2013. Guidance for cash cost is between $17 and $18.50 per payable ounce of silver sold. In 2013, we are required to adopt the new deferred stripping accounting standard IFRIC 20, which will impact our presented cash costs in our income statement. As 2013 is a high-strip year at the San Miguel pit at Pirquitas, we expect to defer a significant amount of stripping costs, which will be amortized in subsequent periods. Capital expenditures at Pirquitas are anticipated at $25 million, of which $15 million is for tailings expansion and approximately $2 million for an increase to the zinc circuit to handle the higher production levels.

Development expenditures are forecast at $17 million, almost exclusively at Pitarrilla and San Luis. Of course, those amounts would change materially if construction decisions are made. Exploration expenditures are expected to total $15 million, with allocation and total of spend being very results driven. The focus for 2013 is on continuing stable production, high attention to cost at Pirquitas, and locking in our next phase of growth. The delivery of the strong Pitarrilla project feasibility study demonstrates the value the project can bring to our shareholders over three decades of operations. So, we exit 2012 with a balance sheet that provides the platform to deliver value from Pitarrilla and San Luis.

Silver Standard has a similar number of shares outstanding as it has had since February 2010, yet as we sit here today, after our recent offering and redemption of the notes, we have approximately $480 million in cash and an interest in Pretium worth over $145 million. With this, we are well-positioned to deliver on our business plan. I will now turn the call back to John for concluding remarks.

Thanks, Greg. Ladies and gentlemen, at Silver Standard, we have systematically delivered on our strategy. We have done what we said we would do. Revisiting our goals that we shared with the market at the beginning of the year, we are producing consistent quarterly operating performance at Pirquitas; our sales strategy is in place and we can see the benefit of that through the revenue line and improved margins; and we also are managing the Pirquitas export/import supply chain well, thanks mainly to our in-country team. The experiences and learnings we have at Pirquitas operating one of the largest open-pit silver mines in challenging circumstance, validates our operating capability for future mines.

Speaking of our future mine, the completion of the Pitarrilla feasibility study was another major milestone for us. Recent market activity validates our strategy and the value it will create for Pitarrilla, producing on our business. The convertible financing we completed earlier this year was necessary for funding for the retirement of the existing convertible, but very significantly adds to the financing for our growth, another critical achievement.

Now, our employees make our business successful. Having an excellent experienced team in place further augmented with Alan coming aboard, allows us to focus on building real value for our investors, underpinned by experience and good process. We have done what we said we would do. While the equity markets, particularly resources, are difficult just now, we are committed to delivering value for our shareholders. So, now with that, let me pass over to the operator who will open up for any questions you may have.

(Operator Instructions)

Ralph Profiti, Credit Suisse.

Thanks for taking my questions. I have two of them.

Firstly, the drilling success you've you had at Cortaderas is showing significantly higher zinc grades -- quite compelling, five times higher than what you are seeing at Pirquitas. Just wondering -- I know it's early, but do you envision mill modifications being required? How scalable is that mill, and will this PEA that we're receiving in the first half of 2013 include any scope changes at the mill?

Ralph, good morning. It's John. I will let Andrew speak about that.

So, Ralph, at the moment, we are modifying our circuit. If you remember, we had flood [cells] available to us. We are putting in some extra plumbing right now and starting up some trials; chemicals are in place. We are looking good at this point in time to put that into service.

Understood. Great. Thank you.

Next question is staying in Argentina. The stability agreements and this10% export tax -- confirming that the Federal Supreme Court is really the last line of judicial review. Would that be subject to appeal? If you could provide any idea on clarity in terms of timing, that would also be helpful.

Just addressing that one, Ralph. Where we are with our fiscal stability agreement, we've been back and forth. Our view is that will continue. I think it's a matter of being resolved, but I think it's going to continue back and forth. We believe we've got a strong position here.

To the best of your knowledge, would the ruling coming at the Federal Supreme Court level be subject to appeal?

Yes.

Understood. Thank you very much.

Dan Rollins, RBC Capital Markets.

John, a quick question for you. On San Luis, you described that you've made significant progress with the Ecash community. Could you give some color on where it stood this time last year? And where you stand now?

Yes, Dan. I think for me, we have made good progress. We've got the EIA now for the mine. We've got the agreement with the Cochabamba community. The other community is Ecash, and as at the end of the year we got in there into the community and we are talking to the villages, being able to explain the project and the benefits. We are now in negotiation directly with Ecash to try to conclude the agreement. So, significant progress for me, and I think we are well-positioned around that project.

Have you been able to get the Ecash to put in one negotiating team. I think I was under the impression that at one time they were looking for a lot of people to be in discussions at once.

That's right. And we used to have those big sessions. Now, we've got a much better and we've got a new -- they have got a new board there that works well and we are able to have those discussions with them. In terms of approvals, it goes through plenary sessions, but ultimately we've got a good negotiating team to work with.

Perfect. Just moving onto Cortaderas, anyway. You guys mentioned that you've added resource there. Is that resource reflected in the numbers you published at the end of December?

Yes.

Okay. How much? Because what I'm seeing is, you actually look like you depleted your reserves by about 1.8 million tonnes, which equates to what you processed during the year. But, your total, including inferred and M&I resource actually declined by 2 million tonnes. So, if you added at Cortaderas, where are the other resources coming out of?

The remaining resources are below the pit.

Okay. I'm just wondering -- if you add it at Cortaderas, did you pull resource out of the current resource that was in it last year, from the main pit?

No. We will come back to you with more --

Okay. Just the math does not work, that's all.

That's fine. We're happy to do that. We'll catch you up --

Perfect. Maybe just for Greg -- the $48 million recovery tax benefit for Argentina -- that's non-cash, correct?

That is correct, Dan. That is a deferred tax adjustment that would be -- the benefit of that would be recognized in future periods.

Okay. Just so I understand, why was that not adjusted from the adjusted earnings?

It was; if you look at our non-GAAP note, you will see the adjustment related to that amount in that note.

Where is that? We can take it off-line, but I don't see that.

Okay. Sure. We can discuss that later. But, if you look at the non-GAAP disclosure documents in MD&A, it's in the table on Note 14.

Okay. Sorry, am I'm looking at that; just wondering what it's disclosed as? The biggest one there is $49 million gain on the disposal of associate.

Correct. It's -- sorry, Dan, I will have to --

That's fine. We have a call later. Just on Pitarrilla -- where is everything standing with the permitting process there?

Where we are, specifically on permits, just now we are working with someone at the authority. We've got 21 of the 24 packages you submit that's part of the EIA in with them. What we are getting them to do is a technical review. Then, when we complete the land issues, we then do the formal submissions. So, well in the process of that one, Dan.

When do you think you might be able to submit the full package?

Very soon.

Okay. Is this sort of a defined time limit they have, once you have final submission, to get back to you with the response?

They have a defined time, defined process. By doing the technical review here, we are sort of compressing the timeline for the EIA.

Perfect. I guess with negotiations on potential partners or financing options, that will be dictated by -- once you have the permits in place and the land issues taken care of, correct?

Yes. We have four tracks we are running just now through this year to get to that decision. One, as you mentioned, is financing, and looking at partners. Also, getting the permits submitted. That's another important part. We are also doing a pre-construction activities, getting ready to make choices and looking at design and so forth.

Perfect. I'm looking forward to seeing you guys moving ahead with that mine. It looks like it will be a good one with a long life.

Yes. Thanks, Dan.

No problem. Thanks, guys.

Andrew Kaip, BMO Capital Markets.

Just a follow-up on what Dan was asking about San Luis. You've got the EIS. You are working on the final community agreements. Are you progressing water right acquisition, as well as detailed engineering, for submission of a construction permit, as well?

We are moving these things along, as well, Andrew.

Okay.

In the process of working, which we have -- clearly, we've got feasibility study done; we are having a look at that as we move forward. There's a sequence of activities we are going with just now. Critical path item for us is this agreement. In conjunction with that, we're looking at all the permits we need, getting them set up in train, and we will deal with those.

Okay. Thanks much.

Thanks.

[Shimakula Masuto], CIBC.

Just another follow-up on San Luis. Understanding that the permitting submission cannot go ahead unless this land agreement issue is sorted out, can you give a sense of timing? When does that start to encroach on your own project timeline?

It's a good point. For us, we've been working hard with San Luis and the communities for a number of years. I think the point is, we are now getting very close to that decision point. I think through this year, we will make some decisions around San Luis. Where we are sitting just now, we're working real hard, very focused around that Ecash agreement. We've got an offer into them, so there is a process well in train now.

Okay. Do you have a sense on how long the permitting will take, once you submit?

No. It would be wrong to have a guess at that. Certainly there are people down in Lima that know what the permits are that we've got to get and they've got them scheduled and being worked on.

Fair enough.

Just switching to Argentina, if I may. You've been mining at a grade that's really quite above the reserve grade. How should we think about the profile as you now move into sulfides from Phase 1 to Phase 2.

In terms of?

In terms of the silver grades.

We are working through grades and we are working through life of mine grades. We get a [beneficiated] coming through into the jigs before it goes into the mills. We are working on life of mine grades.

Okay. Thank you.

Jeffrey Wright, Global Hunter.

First question I had was, going back to Pirquitas and the significant ramp up in zinc in 2013, what should we be thinking, in terms of zinc grades and how to rectify our models to what's on the ground there?

Andrew, do want to have a go?

Sure. What you will see in this year and coming into next year, is a slightly elevated grade of zinc as we run down the side of Phase 2, if you like; bringing down Phase 2 around Phase 1, which is really focusing us on the Potosi area. After we get through that, zinc grades will decrease again, back down to the San Miguel grades that we've been seeing in the last year. So, it will be roughly a tripling of grade from the San Miguel to the Potosi zone, and then decreasing back down again.

Okay. When you say tripling the grade, we would see the grade go from, let's call it 0.65 to 1.8? Is that a fair way to look at it?

That will be the peak, and then we will be back down again.

That will probably kick in, when -- Q3 Q4 this year?

Q3, Q4.

Okay. All my other questions are answered previously. Thanks, guys. I'll talk to you later.

Adam Graf, Dahlman Rose.

Just a follow-up on the previous question -- as far as the zinc recoveries, what should we expect going forward? Are you going to get better recoveries with the better grade? Or do you expect to recoveries to remain about the same?

Right. We should see grades of recoveries be roughly the same. Again, we are still developing this new circuit, so we need some experience based on that as well.

Then, on a completely different subject -- can you just quickly go through again and summarize how you guys have changed your reporting, as far as your non-GAAP costs metrics?

Greg?

Sure, Adam.

We put a fair bit of detail on this, as well, in our January 8 guidance release. I would refer you to that for some detail on it. But the fundamental change is a shift; as you recall, we used to report on a production basis. Therefore, the site costs were being driven off of direct mining costs. But the off-site costs were actually being driven by our ounces sold. So, there was a misalignment between two parts of the metric that were both being divided by the produced ounces.

As most silver producers report on a payable ounce sold, and the majority of concentrate producers do as well, we have now adopted that, which results in the cost of inventory being the primary driver of site cost, and the off-site costs also being driven by those payable ounces sold. So, it aligned those two metrics and those are all divided by our payable ounces sold.

Just a follow-up on that, Greg. In theory, as you guys go forward here, work down any inventories and better match production to sales, the difference between the two measurements should, I would assume, shrink?

That's correct. Obviously, there's some slight time lags currently because of the inventory stockpile. As that's reduced, those time lags would reduce. All in all, it will provide investors with a better understanding of the performance of the asset, and certainly the trajectory as costs moved around the performance of the Pirquitas mine.

Finally, related to that, Greg -- the forward-looking guidance that you've given on cash costs, is that on a per ounce sold basis or a production basis?

The guidance was aligned to our go-forward approach, so it is consistent with what I just described to you.

Okay. Very good. Thank you very much.

Thanks, Adam.

There are no further questions at this time. I would like to turn the call back over to Mr. Smith.

Okay. Thank you everybody. Thank you for your attendance on the call and your questions and we look forward to a good 2013, as we step into the year. Thank you.

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