SSR Mining Inc (SSRM) 2014 Q4 法說會逐字稿

Good morning, everyone, and welcome to Silver Standard's Fourth Quarter and Year-End 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, Karen. Good morning, ladies and gentlemen. Welcome to Silver Standard's Fourth Quarter and Year-End 2014 Conference Call, during which we will provide a review of our financial performance and give an update on our business.

Our financial statements and management's discussion and analysis have been filed on SEDAR and EDGAR and are also available on our website. To accompany our call, there is an online webcast, and you'll find the information to access the webcast in our news release relating to this call.

Now we will be making forward-looking statements today, so please read the disclosures in the relevant documents.

Joining me on the call this morning are Greg Martin, our CFO; Alan Pangbourne, Senior Vice President, Operations; and Jon Gilligan, Vice President, Technical and Development. Also present is John DeCooman, Vice President, Business Development and Strategy; and Kelly Stark-Anderson, our Vice President, Legal and Corporate Affairs.

The fourth quarter capped out a transformational year for Silver Standard. We delivered record production at Marigold, completing a strong year with near 130,000 ounces of gold produced in the nine months that we operated the mine, beating the upper end of annual guidance given. Also, cash costs per ounce sold were 34% lower quarter-on-quarter, helping achieve the lower end of our annual cost guidance.

Our story continues with further opportunities to drive down costs through smart application of operational excellence, and we are also having success via the drill bit with intercepts well above mine grades that Jon will share with you later on.

We have taken an asset that was undervalued in a joint venture and shown what can be done with focus and experience. This was part of the strategy of the acquisition which underpinned our purchase, more than doubling our EBIT margin.

Not to be outdone, Pirquitas for the third year in succession achieved guidance and had a record production year for both silver and zinc. Cash costs per ounce sold were down 4% quarter-on-quarter, the four-quarter costs per ounce now having an 11 number in the front of it at $11.76.

Our philosophy at Pirquitas is no different than with Marigold, our focus on planning and operating for margin. You will hear Jon explain the impact of this approach and thinking at Pirquitas, which is prudent and focused on life extension and margin.

At Marigold, one of the first things we did was to change the mine plan consistent with the strategy. We have over 2 million ounces in reserves, and the new plan is clearly delivering value for us.

Strong performance delivers to the bottom line. So notwithstanding the fall in silver and gold prices period-on-period, we added $50 million cash to treasury in the fourth quarter, finishing the year with $185 million. This second consecutive quarter of cash build is in a year where most others have depleted their positions. Importantly, this was achieved at current metal prices.

We've been building and delivering for the past four years. It's a journey we are now seeing the fruits of our labor coming through to results. We have achieved this by simply doing the right things well and focusing on delivery. At our mines, the mantra is safe production at lowest cost, and elsewhere in our business, it's about the identification and evaluation of growth options, from exploration through to the acquisitions, consistent with our strategy.

At year end, we have cash and marketable securities totaling $290 million, which will allow us to move proactively at this part in the cycle. We have shown that in all the transactions we have undertaken, divestments and acquisitions, we have created real value for our shareholders. That's what we do and that's how we work.

I also wanted to address a matter that arose subsequent to year end. The Canadian Revenue Agency has reassessed the tax treatment of our 2010 sale of our subsidiary that owned and operated the Snowfield and Brucejack properties. The CRA has taken a position that the transaction was on income account and not on capital account as we had recorded it.

As we advised in our press release, we are disputing the reassessment, and as a result, have to put half the reassessed amount on deposit for the CRA. Now as a management, we consider our interpretation of the tax treatment to be both fair and accurate, and we will vigorously defend our case.

And now let me turn the call over to Alan, who will discuss the operations in more detail.

Thank you, John. Today I'll discuss the quarterly and yearly results for our operations. Starting with Marigold, following their smooth integration into Silver Standard, we focused on operational excellence to ensure that we safely deliver continually improving performance out of the existing equipment and infrastructure that we acquired in April last year.

During the year, we've been able to improve almost all aspects of the operation. Drilling efficiency has improved sufficiently to allow us to maintain the drilled and blasted stocks, whilst reducing the number of operating drills from six in April to four now, with the associated reduction in operating costs. Shovel productivity has increased. The monthly material moved and enabled us to lower our loading cost. In maintenance, we have improved our practices and reduced the unplanned outages, leading to better availability and lower maintenance cost.

Operationally, the recently implemented hot shift change procedure has resulted in a significant increase in utilization of the key equipment in the mine. This focus on safely moving tonnes at the lowest cost possible and delivering the best margin ore has allowed us to achieve the above guidance production for 2014. This resulted in the fourth quarter production of over 67,000 ounces of gold, the best quarter in the history of the mine.

During the three quarters that we have owned Marigold, we produced over 129,000 ounces of gold, again exceeding the high end of the annual guidance by over 9,000 ounces. These strong results were the combination of our focus on operational excellence and stacking more high-grade material than was expected from the lower benches in the Mackay Phase 1 pit. We expect some of these ounces to carry over into Q1 2015, and this should result in a stronger high-quarter production as planned. And we'll also expect a strong fourth quarter as we move into the high-grade deeper benches in the next phase of the Mackay pit.

Looking forward at Marigold, we'll maintain the focus on operational excellence and safely moving the maximum amount of material at the lowest cost possible, whilst always focusing on the highest-margin ore. We have additional projects underway that will further improve performance in the mine, and we expect to see these impact in 2015.

Many of these achievements have been built into the 2015 production guidance of 160,000 to 175,000 ounces of gold, with a cash cost of $725 to $800 per ounce sold. As a result of the improvements throughout 2014, we saw a steady increase in the total tonnes moved in the mine, and we're now consistently achieving over 6.4 million tonnes per month moved, which puts us in good stead to achieve this year's target tonnage.

As expected, we are now clearly seeing that the site bottleneck has moved to the truck fleet. This has led us to start looking at various possibilities to fully utilize the higher proven loading capacity and realize the potentially higher total tonnage movement.

Moving on to Pirquitas, where we also continued with the focus on operational excellence. And this can clearly be seen in the quarter-on-quarter improvement in cash costs that have dropped from $12.36 in Q1 to $11.76 in Q4. Additionally, as we have increased the proportion of fresh sulphide ore direct from the open pit, lowering our reliance on stockpiled ore, we have achieved a significant improvement in the silver recovery from 72% in Q1 to almost 84% in Q4.

Zinc production reduced quarter-on-quarter, as the planned mining area moved from the high-grade zinc areas back to the central higher-grade silver core of the deposit. The zinc production for Q4 was 4.8 million pounds.

As a result of these improvements, this quarter, Pirquitas produced 2.2 million ounces of silver, leading to an annual production of 8.7 million ounces, a record for the mine. This also culminated in Pirquitas meeting or exceeding production and cost guidance for the last three years.

During the year and Q4, the mining rate was relatively stable around 4 million tonnes per quarter. However, over the year, the strip ratio has reduced significantly from over 10 to 1 to less than 5 to 1 in Q4. This reduction in strip ratio has allowed the tonnage of available ore to increase month-on-month as planned. This trend is expected to continue in 2015.

Mining costs on a per ton moved basis have risen over the year, predominantly due to the increased haulage distances and elevation increases, as the pit gets deeper and the waste dumps get higher and further away. However, total dollar spend in the mine is reducing, as the total material moved has started to reduce in line with the lower strip ratio.

In the plant, the grade and tonnage process was in line with our plans. But now with 100% of the feed coming direct from the mine, we've been focused on plant performance over the last two quarters and have been able to increase the total silver recovery, but more importantly, silver-to-silver concentrate recovery, and silver concentrate grades have also increased. This has a positive impact on total silver payability, freight and treatment charges for our concentrates.

So as with previous quarters, our strong management team in Argentina continues to demonstrate their ability to maintain and operate while -- under challenging conditions.

In 2015, as we move back into the core of the deposit, we expect an increase in ore supply and silver grade, that when combined with the improved metallurgical performance, led us to our 2015 guidance of 9 million to 10 million ounces of silver produced, at a cash cost between $11.50 and $12.50 per ounce.

So in summary, Q4 delivered better-than-planned results at both operations in terms of production, volumes and operating cost. 2015 is planned to build on the operational improvements made in 2014 and safely deliver increased production for both operations whilst maintaining the focus on costs and margin.

I'll now hand over to Jon, who'll take you through the reserve and resource statements and the exploration activities that occurred in the fourth quarter.

Thank you, Alan. Over the quarter, we continued to drive our near-mine exploration programs, with successes at both our operating mines. We issued two market releases on positive drill results, indicating new higher-grade oxide mineralization in the 8 South pit area at Marigold. Whilst at Pirquitas, with our strong focus on life extension, the exploration team commenced an underground drilling program on resources underlying the current open pit, with the objective to move these into reserves. They also completed the first round of near-mine reconnaissance drilling.

Project activity continued during the quarter, with ongoing assessment of underground options at Pitarrilla and further interaction with the regulators around water supply restrictions in Mexico. We progressed metallurgical test work on the Berenguela silver, copper, manganese deposit in Southern Peru and have rebased our community relations strategy around the San Luis project in the Ancash region. Into the first quarter, we are now re-engaging with the newly elected leadership for both the Ecash and Cochabamba communities.

Turning to our year-end mineral reserves and resources estimates. In line with market trends, we've used price assumptions $1,200 an ounce of gold and $19 an ounce of silver for reserves, whilst maintaining our 2013 price assumptions for resources at $1,500 an ounce of gold and $25 an ounce of silver.

At year end, proven and probable reserves were estimated to be approximately 48 million ounces of silver and 2.6 million ounces of gold. Year-on-year reserves estimates changed by 506 million ounces of silver. This is primarily due to the reclassification of 478 million ounces of silver in reserves at Pitarrilla back to measured and indicated resources.

We have made this decision based on two factors. Firstly, the changing economic conditions in Mexico; and secondly, the ongoing order moratorium, which impacts both project timings and approval. Pitarrilla remains an important asset for Silver Standard, and the mineral resources remained unchanged in the portfolio. We retain the optionality to realize value in the future under an appropriate price and production configuration.

At Pirquitas, the reserves are reduced by approximately 27 million ounces of silver, due in large part to depletion and updated economic parameters. The approach we took with the annual reserves and resources review of Pirquitas was consistent with our mining-for-margin view of the business.

Accordingly, we have reevaluated cost and performance parameters, updated the underlying geological models and removed low-grade material from the reserves. As a result, we've seen a 10% increase in the reserves' silver grade year-on-year to 212 grams per tonne silver. This provides for a more robust mine plan, which underpins the production increases in 2015, recently described by Alan. However, we also retain future optionality with our substantial measured and indicated resources at Pirquitas at just under 100 million ounces of silver, inclusive of reserves.

Another highlight of our 2014 reserves and resources statement is the addition of Marigold mine. This adds 2.32 million ounces of gold in reserves and 4.42 million ounces of gold in resources that is inclusive of reserves. These figures are an increase of approximately 200,000 ounces of gold on the end September reserves and resources information released to market in Q4 last year.

Moving now to provide a summary of exploration development activity at the two operating assets. At Pirquitas, we have maintained emphasis on expiration and development activities that have the potential to realize life extension to the operations. A number of options are available to us. Exploration activity is targeting potential satellite deposits, both near-mine and within trucking distance of the processing plant. We are engaged in technical studies to evaluate an additional pushback to the open pit and plan to reevaluate the metallurgical performance of the low-grade, marginal and oxide ores.

During the quarter, we completed just over 3,000 meters of reconnaissance drilling in 17 holes on targets located within 3 kilometers of the current open pit operation. The Medano target, close to the open pit, yielded a drill intercept of just under 200 grams per tonne silver over 8 meters. This and two other targets are being followed up in the 2015 exploration program.

We also commenced an underground resource delineation program on the high-grade Oploca and San Miguel vein systems underlying the Pirquitas open pit. At the end of the quarter, we completed five holes for a total of 1,700 meters of drilling. We have intersected multiple subparallel veins with grades in mineralized widths in line with expectations. Drilling continues into 2015, with a further 4,000 meters planned in Q1. Conceptual studies for a high-grade underground ore supply commenced during the quarter, with the objective to bring these resources into reserves later in the year.

At Marigold, we finalized the 2014 resource development program in the quarter, with a total of just over 21,000 meters in 116 holes drilled on targets in the Mackay, Hercules, 5 North and 8 South pit areas.

The Marigold exploration team had a very successful year in targeting resource replacement, with over 80% of those holes reporting mineralized intercepts above cut-off grade criteria. These added some 180,000 ounces of gold to the resource base at a replacement cost of less than $10 an ounce. This is a great result for the team.

The 2015 resource exploration program commenced with very positive results early this quarter in the 8 South pit area, with a high-grade drill intercept of 2.4 grams per tonne gold over 91 meters, including 5.8 grams gold over 36 meters. The program this year further targets similar near-surface, high-grade mineralization in other areas of the deposit, and we look forward to providing further updates through the year.

On the deep sulfide exploration project at Marigold, we completed 2,800 meters of drilling in three holes and confirmed the existence of permissive rock units below 700 meters depth, underlying the oxide-bearing Valmy formation currently being mined. 3 further drill holes are planned in 2015.

So 2014 has seen us shift focus towards the most valuable ounces in our portfolio, supporting mining for margin, developing life extension and creating optionality at our operating assets. We have rationalized our reserves and resources base as at end 2014 to reflect the prevailing economic climate and our operating philosophy, running our operating assets safely for margin.

Brownfields programs at Marigold and Pirquitas both delivered positive results over the year and the higher-grade results recently coming from Marigold are particularly encouraging.

Now over to Greg for a discussion of the company's financial results.

Thanks, Jon, and good morning. Our financial performance in the fourth quarter brought home a successful 2014 for the company. We put a major focus on preserving and rebuilding our liquidity after making the all-cash Marigold acquisition, and our closing cash position of $185 million puts us ahead of the internal targets we set.

Marigold's fourth quarter performance, the best quarter in the mine's history, combined with Pirquitas continuing to show resiliency at these price levels, underscored the increased scale and quality of our business.

Our ability to add liquidity to the balance sheet came within a year where metal price environment continued to be challenging, particularly for silver. Silver declined by 20% through the year, while gold held firmer but still declined by about 10%. These price levels challenged the industry's ability to grow and generate cash. So we differentiated ourselves by doing both through 2014.

Sales were strong in the fourth quarter, as Pirquitas sold 2.8 million ounces of silver and Marigold 69,000 ounces of gold. These results drove full year sales at Pirquitas to 8.1 million ounces of silver and at Marigold to 129,000 ounces of gold. As a result, revenue for the fourth quarter totaled $122 million and $300 million for the full year. That represents a 150% increase from the comparative quarter and a 72% increase for the year, despite a drop in metal prices relative to 2013.

Income from mine operations in the fourth quarter, excluding the noncash write-down to low-grade stockpiles at Pirquitas, was $24.3 million, a sixfold increase over the fourth quarter of 2013. Income from mine operations for the year totaled $47.5 million before the stockpile noncash write-down, almost three times higher than the adjusted comparative figure from 2013. So despite that challenging metal price backdrop, the asset portfolio performed well, with positive contributions from Marigold.

I'd like to draw attention to the fact that we've made a significant change in our accounting policy related to exploration and development expenditures. For 2014 and going forward, we are expensing exploration and development expenditures until a project meets certain economic and technical criteria, as outlined in our disclosed policy. So as a result, we restated comparative periods for this policy change and restated opening, retained earnings and property, plant and equipment. Our exploration, evaluation and reclamation expense recognized has increased to approximately $20 million for both 2014 and 2013.

With the fall in silver prices through 2014 and the commensurate lowering of consensus future metal prices for the coming years, we were required to take a $40.3 million impairment charge against our Pirquitas mine. While the mine has successfully reduced its cost structure, the offsetting effects of metal prices, combined with the government's strong peso policy, impacted our current assessment of the carrying value of the property.

For the same metal price and economic reasons, we have removed certain low-grade stockpiles from the end of the Pirquitas production plan and therefore recorded a charge of $11.3 million through fourth quarter cost of sales. Should future metal prices improve or other economic factors change, the stockpiles remain available for processing.

These factors, combined with the acquisition of Marigold and restructuring of certain subsidiaries, resulted in some significant noncash deferred tax adjustments through the year and the fourth quarter, which kicked out unusual tax expense results.

Our adjusted income before tax in the fourth quarter was $1.1 million, and after-tax adjusted net loss was $6.3 million or $0.08 per share. These results showed significant improvement to the underlying business performance from the comparative period. For the year, adjusted net loss was $24 million or $0.30 per share, approximately half the adjusted loss compared to 2013. These results speak to the impact Marigold had on the financial performance of our business in 2014. Our reported loss was $126 million or $1.57 per share.

In looking at cash flow, the fourth quarter was outstanding, as Marigold produced and sold record gold and Pirquitas silver sales were strong. Cash flow from operations of $69 million for the full year was a dramatic improvement over the $14 million used in 2013, despite the higher metal prices in that comparative period. So the addition of Marigold, with no increase in overhead costs, enabled the Marigold cash flow to largely drop to the operating line. And we also had significant positive contribution from VAT recoveries.

The underpinnings of the strong cash flow from operations was the cash cost performance at both assets, as Pirquitas at $12.08 per payable silver ounce sold was right at the bottom of the $12 to $13 per ounce guidance range. That had been lowered mid-year from our starting range of $12.50 to $13.50 per ounce. Marigold at $838 per payable gold ounce sold was also in the lower part of the $800 to $900 per ounce guidance range.

As noted by Alan previously, both mines turned in their best cash cost performance of the year in the fourth quarter, ending 2014 on a positive note, and importantly, building momentum into 2015.

During 2014, our total cash used in investing activities was $299 million, of which $268 million relates to the Marigold acquisition. Our investments into our core assets, CapEx plus deferred stripping, was about $5 million below guidance on a combined basis, again demonstrating our commitment to deliver to plans. We generated $39 million from sales of marketable securities, taking advantage of stronger market conditions earlier last year to divest a number of minor holdings in other companies.

When we acquired Marigold, we stressed a couple of points. Its low capital needs due to the recent investments by the former owners, and despite been an all-cash transaction, our ability to retain strong liquidity to fund our next stage of growth. So it's satisfying to see our cash position grow from a low point at the end of Q2 of $102 million to a year end amount of $185 million, an $83 million increase.

Also, as we acquired significant working capital as part of the transaction, our working capital at December 31 remained an impressive $369 million and down only $208 million from the end of 2013, despite the cash purchase and related acquisition and integration costs.

Our working capital position certainly gives us capability to drive our strategy. We announced our 2015 guidance in early January, which showed positive expectations at both mines. Pirquitas is forecast to increase production to between 9 million and 10 million ounces of silver at lower cost of between $11.50 and $12.50 per payable ounce of silver sold, despite a significant decline in by-product credits. Capital investments remain modest at $10 million, and we expect no stripping capital.

We will get the benefits of a full year of contribution from Marigold in 2015. So we forecast gold production to increase to between 160,000 and 175,000 ounces at cost below 2014 levels of between $725 and $800 per payable gold ounce sold. As we had indicated through the 43-101, 2015 is a year of fairly heavy stripping, as the next Marigold phase gets developed. So capitalized stripping is expected to total $25 million, with capital expenditures an additional $20 million, of which about $7 million is for a leach pad.

The first and final quarters of 2015 should be the strongest at Marigold, as Q1 benefits from the strong finish to 2014, and by Q4, we get into the better ore within the next Mackay phase.

So taking the midpoint of our guidance ranges and at the current 70 to 1 gold-silver ratio, our 2015 production totals over 21 million silver equivalent ounces or expressed in gold terms, 300,000 gold equivalent ounces, a solid mid-tier production base. Our exploration expenditures are expected to total $15 million, with the focus remaining on areas around Pirquitas and on the Marigold land package.

So to wrap up, through 2014, we delivered on the items under our control. Operations exceeded plan. G&A and exploration costs were reduced, despite adding Marigold. Capital expenditures were to plan, and we continued to surface value from our balance sheet assets. Marigold showed the impact it can have on our financial performance in driving income from mine operations and positive operating cash flow. Metal prices remain challenging here to deliver positive earnings, but we remain focused on driving free cash flow from the portfolio to position ourselves to take advantage of opportunities that arise.

I'll now turn the call back to John Smith.

Thanks, Greg. So as we close 2014, I'd like to revisit the goals we set ourselves and then talk about 2015. Without doubt, we had a very successful 2014. We integrated Marigold quickly into our business and gone about the task of resetting the plan and driving performance and exploration activity. With the Marigold management team now in Silver Standard, we have added to our capability. And this, along with the change in approach that we brought, has been instrumental in their success.

More ounces safely produced at lower cost says it all. At Pirquitas, the story is the same, delivering in a more challenging environment and falling metal prices.

With all that we achieved in 2014, we also finished the year with $185 million in cash, strongly positioning us for even further growth. In 2015, we have two simple objectives for this year, running our business in a disciplined way to deliver positive cash flow at the corporate level; and then using our cash and marketable securities to fund further growth.

Our strategy is to look at producing mine opportunities and also advanced-stage projects that make strategic and business sense to pursue. We have a team that have delivered and can do much more. Throughout our business, we have a broad capability and operating experience. With a clear, articulated strategy, our people and our financial capacity, Silver Standard offers proven capability, opportunity and investment value compared to our peers. 2014 was a transformational year for us, and we now look forward to an equally exciting 2015, and it's certainly shaping out that way.

So with this, our presentation concludes, and I'll pass you over to the operator, Karen, who will take any questions that you may have.

(Operator Instructions) Our first question comes from the line of Craig Johnston from ScotiaBank.

Thanks for taking my call. A couple of questions today. First, I'll start with Pirquitas. Just wondering, for 2015, if you're able to share some of the details behind the production, i.e., maybe grade mined, tons mined and grade processed - anticipated numbers?

We can certainly do that. I'll let Alan talk about 2015.

Craig, 2015, the increase in silver production is predominantly driven by an increase in grade, as we come into the core, and then also on the cost side as we reduce the strip ratio and the mine produces more ore than waste. We'll have to get back to you with some actual details on the actual numbers of what the final grade is for the year. I don't have them on hand at the moment.

But fair to assume you'll still be stockpiling some lower-grade material?

Correct. There should be low-grade material that comes out of the mine with that higher-grade material.

The good thing about that low-grade material, Craig, is it's pure sulfide low-grade. So again, we'll look at that, how we process later on in its life.

Okay, okay, good to know. And then, just at Marigold, impressive costs in Q4. I was wondering if you could maybe shed some light on what you're seeing for mining costs per tonne right now, and with oil prices where they are, kind of what type of benefits you're seeing there.

Sure, Craig. We've seen the mining costs come down from about $1.70 when we took over the operation, and it's been slowly trending down every quarter. And last quarter, we got down to $1.62. We hadn't seen much impact on the oil price towards the end of the year, and we expect to obviously see more of that in the first quarter of this year.

Okay, great. And one last question. Just the un-fun topic of the CRA audit. Just wondering if -- I know that you guys disagree and personally, I do as well, but just wondering, in terms of the tax implications of the other asset sales that you made this year, if there is any concerns with, say, the CRA looking at those as well and considering them to be on an income basis as well?

Let me get Greg to best answer that one.

Certainly, at this point, they are strictly focused on this issue. They have not raised any further issues on any of the audit work that they conducted.

But from a tax perspective, you guys, I'm assuming, treated those asset sales on a high level, similar to the one they're looking at.

Yes, I mean, every sale is different by its nature, Craig. So you can't draw parallels to the situations. They're either in different jurisdictions, so they're not under the purview of the CRA, or they have quite a substantively different fact set that underlies them. So I would encourage you not to draw any similarities between this specific situation and any other situation that either us or others are necessarily subject to.

Okay, thanks. That's a very good point. Okay. That's it for me. Thanks, guys.

Thanks, Craig.

Thank you. Our next question comes from the line of Mark Mihaljevic from RBC Capital Markets.

Good morning, guys. Just a couple of questions from me. Wanted to pick your brain a bit about what you're thinking about a potential underground at Pirquitas. How much you think it would cost to get into production? When could you get it in there? Really, just any broad parameters you're able to share at this time.

I think the main thing about that, Mark, is we got about five different options that we're looking at Pirquitas. There's clearly underground opportunity, and Jon is doing drilling work there. There is a pushback. There is -- on surface, there is opportunities near on the land packages that we have and also externally and further out.

So there is a lot of things that we're looking at here. And we'll work through that process of determining which option is best. And within that, we'll clearly look at capital and operating cost. But I think the takeaway is we have options here and we are making sure that we get on with them.

Okay, sure. Obviously, you guys have a very strong balance sheet and you also have a number of earlier-state projects in your pipeline. So just wondering what you're seeing from the corporate development perspective. Is there anything interesting in the market right now? Are you getting a lot of inbound calls on your portfolio? Or are you really just focused on continuing to drive value at your current operating assets?

I think our strategy for '15 is to use the cash that we have accumulated and accumulating to buy. And as I said, we'll look at opportunities, whether they are mine or advanced-stage projects.

And in terms of flow, I think there is more flow coming, as people change and live more in the reality of today's prices. So I think it's getting better. That being said, for us, it has to be consistent with our strategy and what we want to do and make a fit. So we'll keep looking at that stuff.

So really, our focus 2015 is more about that opportunity set. And as John said in regard to our own portfolio of properties, we will keep them sort of ticking along, that's more a care and maintenance-style approach there. And we can do some fairly important work without major spend in those areas, because it'll allow us time to really look at those acquisition opportunities. So that's really the focus in '15.

Just to follow up quickly there, do you have any broad parameters for what you're looking at?

Yes, we have. And Marigold fitted that broad parameter. So that's not inconsistent with the style and approach that we're looking at.

Okay. Perfect. Thanks. That's it for me.

Okay.

Thank you. And our next question comes from the line of Jorge Beristain from Deutsche Bank.

Good morning, guys. I'm just trying to tie a little bit of the nice operational tailwind that you seem to have had heading into the fourth quarter results when you preannounced your gold production back in early January to your actual results. And it looks to us like there was a big jump in exploration, evaluation and reclamation expense in the fourth quarter. And I was wondering if you could comment on why that was and how much of that was cash versus noncash and if you expect a similar size line item in that item going forward?

I think we did a change to the accounting policy, which will have had an impact, but I'll let Greg explain it a bit more.

Yes, thanks, Jorge. Good morning. Clearly, from the guidance we provided early in the year on our exploration expenditures, we pretty much hit that number right on. So there was no real change in scope apart from the addition of Marigold that we announced at that acquisition. So from a spend perspective, we were right on target.

As John referenced, and I did earlier, we made a policy change. And so what you're seeing is effectively a re-presentation of those costs out of the investment area of the cash flow statement onto the income statement. So it's just really where you're seeing those show up rather than any change in the underlying activities.

And just to be clear on the thought process behind that, Jorge. Just as we mature right now into more of a producing company, we've brought our policies more in line with our competitors and with the rest of industry. So what we were doing before was sort of more consistent with exploration companies. Now we are now kind of more in line with what mining companies are doing. And so the fourth quarter was really that change coming through into the accounts to reflect.

Got it. And sorry, I did join the call late, so I did miss that comment. So my question is on a go-forward basis, what would be a good baseline for the cash exploration expense in 2015?

Yes, Jorge, thanks. As we put in our outlook section and referenced, we have guided to $15 million of exploration and development expenditures for 2015. Again, those will be principally focused around Pirquitas, the issues that Jon Gilligan spoke to at the underground and surrounding area, as well as Marigold oxide and other drilling-related activities at Marigold. And we're continuing to maintain the full property package from a payment standpoint.

Right. And as a result of that re-class, should we than offset on your cash flow statement that by the similar amount, the $15 million, what you previously would have put in, in CapEx?

Yes, we would certainly like to see -- encourage you guys to make that change to your forecast, and that's exactly the re-presentation that should happen.

Got it. Thanks very much.

Thanks, Jorge.

Thank you. (Operator Instructions) Our next question comes from the line of Robert Weaver from Citigroup.

Have you guys given any thought to the marketable securities that you have in Pretium Resources and what you intend to do with that over the coming year?

Good morning, Robert. Pretty much the same that we've said all the way through consistent, Robert, is that Pretium for us gives us exposure to gold, which we like, and it also gives us exposure to the prospectivity of the project. But we also meant -- made the statement that when we need to access those funds for our own development, then we will do so. So we're really in that stage of managing on that basis, so no change on that, Robert.

Okay. Thank you.

Thank you. And our next question comes from the line of Michael Levental from Cowen and Company.

Just real quick on Pirquitas. We see cash costs coming down despite lower by-product credits. Is that a sustainable -- that intrinsic reduction in operating cost, is that sustainable going forward?

Good Morning, Misha. I'll let Alan speak to that one.

Sure, Misha. We believe so. A lot of it is driven by the additional volume that we expect in 2015 and beyond, as we get into the higher-grade and greater volume of ore. So when we get up to 9 million and 10 million ounces of silver produced, that obviously helps me drive the cost down.

And as I mentioned earlier, we've been able to increase recovery, but also more importantly, we've been able to increase the recovery of silver to silver cone, which gives us better payment terms. And by increasing the concentrate grade as well, which we've managed to do, that reduces my costs related to freight and the TC portion of the treatment charges. So all of those together give us the view that we'll be able to maintain those costs and reduce them going forward in next year and beyond.

Very good. All right. Thank you very much.

Thanks.

Thank you. And our next question is a follow-up from the line of Jorge Beristain from Deutsche Bank.

Just again, maybe for Greg, just a follow-up on the CRA question. Where on your balance sheet are you treating that potential incremental tax liability, and is there a cash reserve that's been set aside within your cash and cash equivalents to potentially pay for that?

Yes, so as disclosed in our statements, we have not made a provision for that under our assessment that it is not a probable outflow. So there is no provision on the balance sheet for it.

In the first quarter, as we make the deposit of the half amount required, as John spoke to in his script, we will then be recording that as an asset on our balance sheet come the end of the first quarter.

Got it. Thanks very much.

Thanks, Jorge.

Thank you. And our next question comes from the line of John Tumazos from Very Independent Investor.

John Tumazos. Good morning. Thank you for taking -

Good morning, John.

Could you review your couple most advanced projects as to whether the -- with changes in currencies, people are giving away steel these days for $500 a tonne, and energy is lower, et cetera, if the costs are falling for any of your projects, versus making an acquisition. And in particular, in the last week, Barrick put Porgera up for sale and Cowal up for sale, and Newcrest put Telfer up for sale, but there is no buyers for big mines in Australia these days. Would you throw $100 million into a partnership to buy one of these mines where there is nobody big enough to buy them?

It's a good question, John. Let me answer it this way. I think we're seeing the oil price drop having an implication on our operating business, because we use a lot of diesel. I think about 17% of our operating costs at Marigold are diesel consumption. So we're seeing the benefit there, clearly, less so maybe down in Pirquitas, because it's a more managed price regime that we have there. So we're definitely seeing the benefit in our operating business.

The question really is, as we look years out, how do we think that's going to influence future prices and is the oil price going to stay down. So we do keep abreast of that. And every time that we have a look at a project or an opportunity, we reassess. So it's fair to say that when we're looking at our development project pipeline, we are reassessing our current views on that. And equally, when we're looking at acquisitions and how we work out what price we'd pay, we take into account that as well.

I think your last question about would we think about joint ventures or whatever, I think, is really for us is it consistent with strategy. And we've shown clearly that we can take a business and make sure that we maximize the value and margin from that business, and it's really as we look at those opportunities strategically and for fit, we'll make the right call. And so we're sort of -- on that basis, we'll make the right investments.

Thank you.

Thanks, John.

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back over to John Smith for any closing comments.

Thank you, Karen, and thank you, everybody, for participating, and have a great day. Thanks very much, folks.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a good day.