SSR Mining Inc (SSRM) 2017 Q2 法說會逐字稿

Good morning, everyone, and welcome to SSR Mining's Second Quarter 2017 Conference Call. This call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Stacey Pavlova, Manager, Investor Relations. Thank you. You may begin.

Thank you, operator. Good morning, ladies and gentlemen. Welcome to our second quarter 2017 conference call as well as first company event under our new name SSR Mining.

During our call today, we will provide an update on our business and a review of our financial performance. Our financial statements and management 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 will find the information to access the webcast in our news release relating to this call.

Please note, all figures discussed during -- sorry, please note, all figures discussed during the call are in U.S. dollars unless otherwise indicated. All references to cash costs and all-in sustaining costs are per payable ounce of metal sold.

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

Joining us on the call this morning are Paul Benson, President and CEO; Greg Martin, our CFO; and Carl Edmunds, our Chief Geologist. Our COO, Alan Pangbourne, is also on the call joining us from Europe and will be available for Q&A.

Now I would like to turn the call over to Paul for opening remarks.

Thank you, Stacey. Good morning, ladies and gentlemen. I'm pleased to welcome you to our call to discuss our second quarter 2017 operating and financial results. Let me start by reminding everyone of our name change. After 7 years as Silver Standard, it was increasingly apparent that our name no longer accurately reflected the focus of our business. Over the years, we have evolved from a silver-focused explorer to an intermediate precious metals producer, with 3 mines in the Americas and approximately 80% of our revenue coming from gold production. Our new name, SSR Mining, takes its roots from the old name, but positions us for the future. Our ticker symbol on the TSX and NASDAQ has also changed to SSRM.

Moving on to our operating results. We delivered a strong second quarter as all 3 mines performed very well, achieving total production of over 100,000 gold equivalent ounces at cash cost of under $700 per ounce. Marigold increased overall tonnes mined and ore tonnes stacked on the leach pad. Seabee once again increased plant throughput, achieving new average tonnes per day records on a monthly and quarterly basis.

Pirquitas exceeded its planned operating performance by processing higher-than-expected grades from stockpiles, along with continued higher average milling rates. Pleasingly, we have improved guidance at all operations after a strong first half and have confidence in the second half outlook.

With this strong operating performance and disciplined investment, we continue to grow our cash position to $354 million, an increase of $30 million compared to the previous quarter. This is despite making the one-off payment of $30 million to Golden Arrow on the formation of the Puna Operations joint venture. In addition to the cash, we held around $175 million in marketable securities, with the majority reflecting a near-10% interest in Pretium.

As of May 31, we hold a 75% interest and are the operator of Puna Operations, which combines our Pirquitas operations with Golden Arrow's Chinchillas deposit. While we will continue to process stockpiles at Pirquitas, development activities at Chinchillas is already underway.

Also with Chinchillas is a baseload ore source for the Pirquitas plant. We reevaluated the potential for a small tonnage Pirquitas underground operation to provide an additional high-grade ore stream to the plant. Pleasingly, the initial desktop study showed that this project is sufficiently attractive to justify a more detailed engineering studies in the second half of this year. If these are satisfactory, we would look to undertake a PEA and pre-feasibility study in 2018.

Importantly, entering into the Puna Operations joint venture has allowed us to maintain the 3 operating legs of our business, with each site having a solid mine life and further exploration or development potential. This also allows us to look further afield for new opportunities. Later in the call, Carl will discuss encouraging results from drilling at the Marigold deep target, the Carr area at Seabee and he will also cover the SIB project in Northern BC where we have commenced drilling.

With Alan overseas, I will now discuss our operational performance in more detail, but Alan will be available for Q&A later in the call.

The quarter continued to demonstrate the scale and consistency of our portfolio, with production for the quarter exceeding 100,000 ounces of gold equivalent ounces at cash costs of $682 per ounce. At Marigold, as planned, we produced over 55,000 ounces of gold. Cash costs increased modestly to $632 per ounce due to higher inventory costs from the lower ounces stacked in Q1 and lower capitalized stripping in the quarter. Cash costs for the quarter and the first half remained below our initial annual guidance.

During Q2, mining rates returned to almost 18 million tonnes as planned. Mining costs remained at similar levels to Q1 at $1.67 per tonne moved as we incurred higher equipment maintenance costs. Through the second quarter, we completed mining of the current phase of the Mackay Pit. We are now able to utilize this area for backfilling waste, providing significantly shorter haul distances through the second half of the year. With these, mining rates are expected to increase in the second half with the unit mining cost reducing to previous levels.

The grade for the quarter was 0.31 grams per tonne, lower than the previous quarter due principally to the mining sequence and the completion of the deeper section in the Mackay Pit, which finished in lower-than-average grade material. The mine remains on track to meet annual production guidance of between 205,000 and 215,000 ounces. The third quarter is expected to be lower with production of between 40,000 to 45,000 ounces due to the lower grade stacked in the past 2 quarters, with production rebounding in the final quarter of the year.

Moving on to Seabee. We produced almost 21,000 ounces of gold at cash cost of $592 per ounce. Mill feed grade of 7.97 grams per tonne was slightly lower compared to the previous quarter. This was mainly due to the ratio of ore sourced between Santoy and Seabee and the sequence of stopes being mined.

Due to ventilation restrictions and the fall of ground at Santoy, we saw a higher tonnage of ore sourced from the Seabee mine. During the quarter, we placed greater emphasis on managing equipment movements and locations in Santoy to minimize the impact of the ventilation constraints. The planned major change to the ventilation system will be implemented in August, and this will allow for higher quantities of fresh air to be directed to the lower levels of the Santoy mine.

There were no injuries or damage to equipment resulting from the fall of ground at Santoy. Restrictions, however, were put in place until a full review of ground support in the area is completed. Following modifications to the support design and installation, production from Santoy returned to planned levels in June.

During the quarter, as a result of our ongoing operational excellence program, the mill processed over 84,000 tonnes, which, on a daily basis, averages 928 tonnes per day, a record break for a quarter. Even at the high rates, recoveries remained high at 97.3%. And in June, with the increased mine production, the mill was able to operate at the highest recorded tonnage so far, averaging 1,049 tonnes per day for the month. These results have given us confidence to increase our annual guidance to between 75,000 and 85,000 ounces from the Seabee Gold Operation. They also give us the basis for the technical study and new mine plans at a sustainable higher -- at a higher sustainable production rate that we expect to release in September this year.

So at Seabee, despite some operational constraints, we continued to deliver higher production. And once the ventilation upgrade is operational and with improved ground controls, we'll be able to continue our operational excellence program to safely increase capacity and reduce cost.

Pirquitas continued with its best safety performance to date, reporting 0 recordable incidents in the quarter and has now operated for 7 months without a recordable incident. Production this quarter was entirely from stockpiled medium-grade material. The process plant continued to operate well at around 5,000 tonnes per day for the quarter. The mill grade was significantly higher than expected, and this led to several positive impacts and allowed us to produce over 1.9 million ounce of silver. Recovery in concentrate grades were also higher than Q1, and cash costs were up to $12.15 per ounce. Cash costs included the accrued costs associated with stockpiles were approximately $3.30 in the second quarter. With the stronger production we've experienced at Pirquitas to date, we've also increased annual guidance by 0.5 million ounces of silver to between 5 million and 6 million ounces of silver.

At the end of the last quarter, we announced our intention to form a joint venture for the development of Chinchillas project. With the JV now formed, we've commenced the associated project development work. Subject to permitting, we anticipate beginning construction late in the third quarter of this year, with ore delivery to the Pirquitas plant in the second half of 2018. Since the announcement, we continued the recruitment of key project and operational personnel, commenced engineering activities on several key elements and placed initial equipment orders. Once permits are approved, the site constructions will commence. Discussions also continue with the government on the road upgrade and other areas of common interest.

So in summary, all of our operations delivered strong first half production and costs, and we are focused on meeting our improved annual production and cost guidance.

I'll now hand over to Carl, who will take us through the exploration activities.

Thank you, Paul. The second quarter saw exploration activities pickup in Nevada as weather improved, while at our operations in Saskatchewan, we maintained pace with underground drilling and positioned ourselves for possible greenfields discovery at Fisher by mobilizing a drill and field team to complete systematic exploration. In BC, we initiated drilling at our SIB project, which offers potential for a high-grade discovery in a well-endowed district.

Starting at Marigold. We drilled 15,300 meters and 55 RC holes during the quarter as part of our planned $5 million 2017 exploration program. Through the quarter, we continued the emphasis on resource-to-reserve conversion to maximize reserve growth in proximity to current reserve pits. Reserve growth drilling was completed on 2 phases of the Mackay Pit, in addition to the East Basalt pit area. To date, this work has been successful and puts us in sight of replacing mining depletion of reserves by the end of the year.

Efforts to increase our resource base saw drilling on widely spaced centers at North Red Dot to confirm our structural understanding of the mineral controlling faults. Additional follow-up drilling is planned for the next quarter.

Since acquiring Marigold, we have been conducting a limited amount of deep exploration for higher-grade sulfide deposits that may be present beneath the open pits currently being mined. This quarter, we received results indicating a broad zone of low-grade mineralization. 43 meters grading 0.3 grams per tonne gold in broken up carbonaceous sediments, including a narrow high-grade interval of 15 centimeters at Assay just under 10 grams per tonne. We are encouraged by these results since it is the first indication that we have a gold-bearing sulfide mineralization in [Komos] formation rocks. The ore host Turquoise Ridge, which is a high-grade Carlin-style deposit in the district. We will be reviewing this result in the context of the other deep core holes and may complete follow-up drilling during the second half of the year.

Moving to Seabee Gold Operation. We completed 16,400 meters of underground drilling and 9,700 meters of surface drilling during the period. In general, underground activities focused on resource conversion, with a minor component of exploration, while surface drilling explored areas for making new additions to inferred resources. Underground drilling at Santoy Gap extended mineralization down-plunge from existing resources, while at 8A, we have been successful in upgrading a significant area of inferred resources.

At the Seabee mine, we completed drill programs on 3 targets near the lower and eastern areas of the mine. Surface drilling results were received from scout holes completed in the first quarter. At Carr, a target located 4 kilometers north of Santoy Gap, along the extension of the Santoy shear zone, we received an ore-grade intercept from mineralized core showing similar alteration as at Santoy Gap. Follow-up work at Carr is planned for the next winter drilling season.

Early in the quarter at Fisher, we installed an exploration camp and mobilized a drill to enable systematic exploration of the extension of the Santoy shear zone and the multiple gold targets that are present on the property. Field works such as mapping, soil sampling and prospecting was underway by early June, and we anticipate drilling late in the third quarter.

Finally, I'm pleased to report that we deployed 2 drill rigs and a support team to begin work at the SIB project in Northwest British Columbia. SIB is a high-grade massive sulfide-type target located in the rich past-producing Eskay Creek mining district. Previous work on the property has demonstrated the presence of precious metals and rich massive sulfide mineralization, and our program is exploring for extensions to that zone across an offsetting fault.

Presently, diamond drilling is underway, which commenced July 1 as part of a 6,000- to 9,000-meter initial program. We have now completed 4 holes for 3,760 meters that have delineated the altered prospective house rock assemblage at predicted depths for over a kilometer of strike length. Up to $3 million of work is planned for 2017 and further drilling in this season will focus on exploring the most altered portion of the favorable volcanic rock package. We look forward to receiving analytical results in the third quarter.

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

Thanks, Carl. With our second quarter, there are 2 areas I would like to highlight. The first being our continued strong financial performance, including the fact that this marks the seventh quarter in a row we added cash to the balance sheet and our formation of Puna Operations, which gives us a strong future in Argentina. For the quarter, on the back of strong production and solid cost performance, we generated revenues of $117 million, and income from mine operations of $29.5 million. Both figures put us ahead on a year-to-date basis from 2016, which was a strong comparative period. Reported net income was $37.8 million or $0.31 per share, influenced by the formation of Puna Operations, which I'll talk to shortly. Adjusted net income, which neutralizes these effects, was $13 million or $0.11 per share. So earnings performance remains solid.

Equally impressive was the cash flow generated by our operations as cash generated by operating activities was nearly $40 million, a 28% increase over the comparative period and taking us year-to-date to $69 million, a 59% increase over this time last year.

I am pleased that despite a $3 million use of working capital, the $13 million payment to exercise our option to form Puna Operations and investments into our business totaling $15.6 million, we still generated $13 million of free cash flow to bring our cash balance to $354 million. Additionally, we held approximately $175 million in marketable securities, the majority of which is in Pretium.

As I highlight each quarter, I, again, bring your attention to our working capital position, which totaled $678 million, showing the resources we have to generate future value for shareholders. As a supplement to our strong balance sheet, we rolled our $75 million credit facility maturity to June 2020 while reducing costs and improving covenants, a reflection of our improved credit quality.

Puna Operations, which was formed at the end of May, impacted our second quarter and introduces some new elements to our statements. In addition to the cash payment it triggered, we became one of the few companies in the mining industry to record an impairment reversal. With the extension of the use of the Pirquitas mill for at least the next 8 years and the robust nature of the Chinchillas project, we wrote back up the mill to its depreciated value, recording a $24 million credit to income. As we control the joint venture, the Chinchillas property was recorded as an asset acquisition for our purposes.

So going forward, we will continue to consolidate 100% of Puna Operations results, but record a noncontrolling interest on the income statement and balance sheet for our partner's share of earnings from the joint venture.

Finally, Paul previously provided the positive revisions to Seabee and Puna Operations production guidance. I am pleased that as we completed our second half forecast, we feel equally confident to improve cash cost guidance at Marigold and Puna Operations. Strong performance, coupled with ongoing lower energy prices and favorable currency movements in Argentina, support these changes. Marigold annual cash cost guidance is reduced by approximately $25 per ounce to between $640 and $670 per payable ounce due to the strong first half cash cost performance. While Puna Operations was reduced by approximately 10% or $1.50 per silver ounce to between $12.50 and $14 per payable silver ounce. I'll remind you that the Puna Operations annual cash cost include approximately $3.50 per ounce related to historical stockpile carrying values.

On a portfolio basis, our gold equivalent cash cost per payable ounce at the midpoint of guidance reduces to $705 per ounce from our start-of-year estimate of $735 per ounce, a meaningful improvement. The only other change to guidance is a marginal increase in Marigold deferred stripping by $3 million, so I am pleased capital investments at the assets remain well managed and well controlled.

With those comments, I turn the call back to Paul.

Thanks, Greg. So in summary, we delivered another strong quarter. Production exceeded 100,000 gold equivalent ounces, which generated free cash flow to further strengthen our best-in-class balance sheet to over $350 million in cash. We continue to deliver on our goals to create value and growth to shareholders through disciplined investment, which now includes greenfields exploration and with Puna Operations, a third strong operating leg to our business.

Looking ahead into the second half of 2017, we have a strong outlook. In September, we will host an Investor Day in Toronto and a much-anticipated Seabee PEA and mine tool, highlighting its bright future. And by year-end, we anticipate an exploration update, an update on the Pirquitas underground, along with our third quarter results. This concludes the formal remarks of our inaugural earnings call as SSR Mining.

I'll now pass the line to the operator to take any questions you may have.

(Operator Instructions) Our first question comes from the line of David Medilek with Macquarie.

I have 3 questions. First one is for Seabee. With the record mill throughput in June, was the mine feeding the mill at this elevated rate? Or was it supplemented by stockpiles? And do you think this processing rate is sustainable?

Alan, I'll get you to earn some money on this one. Do you want to answer that?

Sure. I'll take that question. Yes, the mine -- the reason we could get up was because the mine could keep up with the plan. And obviously, once we finish the PEA, we expect to be able to release a longer-term mine plan. June was -- as the mine was able to produce more ore, we could process it through the plant. We ran up at 1,049 tonnes on average. We obviously had some days that were above that, a few days that were below that. But we believe that, that rate appears to be sustainable in the plant provided the mine continue to feed at that rate.

Great. And next one is also for Seabee. Could we get a bit more color on the fall of ground early in the second quarter? Was it related to development or stoping? And what are the findings, measures taken?

Alan?

Sure. The fall of ground occurred early in the quarter. It was related to a stope hole. So they were drilling above and a piece of the back fell out underneath as they were drilling through it. They lost water and then they noticed -- they heard the fall. As we said in the call, nobody was hurt. No equipment was damaged. We brought our geotech consultants in and the third-party consultants just make sure we hadn't missed anything. There's been some minor changes to our rock-faulting lengths and methods and maximum spans and the design of those reinforcements. And we believe that, that will now solve that issue and we'll be able to continue developing as normal.

It's worth pointing out that, that area was actually initially mined about 2 years ago. So this was put in place quite a while ago, the sill. So we're making sure that going forward that all the ground support is to the new design standards.

Right, right. And my last question is Marigold. The last 3 quarters' recoveries have been above historical averages. Why is this the case? And again, do you think this is sustainable?

Alan?

The recoveries, one of the things we reviewed when we took over the operation was why they were using a flat recovery. And we did some work around get below gravel fill and recoveries by depth. And that is now applied in the model that we have for the life of mine plans. And so what you're seeing is the current phase they're in. They're in some material that's closer to the surface that has higher recoveries. As we get deeper below that, the sum of the recoveries go down until you actually hit some sulfides right at the bottom of the pits when you get underneath the water table. So the change has been since we took over, went back and looked to how they were modeling a flat recovery and changed that to reflect grade recovery in depth. And so that's what you're seeing is where they currently in the mine plan for this quarter. They're quite high up in that current phase, and that's giving them a higher expected recovery.

Our next question comes from the line of Rahul Paul with Canaccord Genuity.

You've done a good job debottlenecking Marigold and gradually increasing mining rates and production levels. Are there any further opportunities that you see to debottleneck and increase production at this stage? Or would the next opportunity be more of a step-change requiring a meaningful amount of capital.

At Marigold, we continuously look at opportunities. We are still truck-constrained. Obviously, we always hold off spending capital. So the easy or the best way to try and improve that is to improve availability through better maintenance. So that's one thing that we're particularly focused on in the second half to see what we can do there. So I think in the short term, incrementally, you would look at truck availability/whether you acquire 1 or 2 more trucks. Longer term, really driven by the exploration program, look to see when you go through equipment replacement whether you replace smaller equipment with larger equipment, particularly in terms of the digging unit. So that would be longer term that we'd -- something that we'd review along with the exploration results.

Sure. And then so you indicated you completed a desktop study of the Pirquitas underground. Are you able to give us a bit more color on some of the assumptions used? I mean, I understand that you've got a plant in place, but just considering the somewhat lower grades for an underground mine, I'm just trying to get a better understanding of what might make it economic.

At this stage, yes, really, the only numbers that we put in the public domain you're aware our plant is running at around 5,000 tonnes a day. And at the moment, the P -- the pre-feas on Chinchillas is 4,000 tonnes a day. So you end up with what looks like spare capacity in the plant. Historically, when we went back -- when we did a review of the potential for an underground, that was before Chinchillas. So we needed to come up with an operation that was being able to produce 4,000 to 5,000 tonnes a day, which means bulk mining, and you end up with lower grades. So this time, it's different. What we're looking at is just a smaller operation, focusing on higher-grade material. You could see from our resource statement some of the grades there -- on our presentation, we highlight some of the very high grades. There are veins there that go over 2 kilograms a tonne. But in terms of Cortaderas, Carl, do you know, off the top of your head, what sort of grades are in the resource?

Those are about 5% zinc and 180-ish silver is that range, but it's my recall.

Yes. And so what will you do now? This is just a desktop study so this is -- it looks positive. So now we'll go through and do some more analysis. So I think just based on the geometry, the areas that we're interested in are sort of Hanging Wall in the pit. They're not beneath the pit. A concept would be something along the lines of decline across less than a kilometer. You'd put in a Hanging Wall drive, so you could do in-fill drilling, and that would get you to M&I rather than just inferred. It wouldn't be farther then to drive across to the ore body. So I think under that scenario, you'd hope that just by cutting across to the ore body, you might be able to generate enough to cover the cost of that initial development and drilling. But obviously, the ultimate aim would be to prove up enough material then do full development for an underground mine that could supply 1,000 tonnes a day. So we've got a lot on our plate at the moment. Obviously, in Argentina, the first focus is getting Chinchillas moving forward. So this isn't our highest priority, but the timing works well. We'll do some more work in this half and then as long as that remains positive, look to do something more formal in terms of PEA and pre-feas in the second half -- in calendar 2018.

And just on that a little bit further. So would I be right in assuming that -- so right now in Pirquitas underground, you've got 1 -- in M&I at least, you've got 2 -- sorry, 1.8 million tonnes grading instead of 224 grams silver, 5 grams per tonne zinc? And is part of the understanding that you'd go in and look at it. As a small scale operation maybe you could look at a smaller, higher-grade component of the overall resource and maybe be a bit more selective in mining?

Yes. I won't verify those numbers. I don't have them in front of me, but obviously, it's on our website. So go and to check that. I think you said 5 grams per tonne zinc. Hopefully, it's percent.

Sorry, 5%.

Yes. No, that's fine. But yes, the concept would be you'd have to do underground drilling to get it to M&I. So that would be an exploratory Hanging Wall driver, something where you drilled from. And then if all is positive, then getting a smaller tonnage as a supplement to keep the mill full. So it's not displacing Chinchillas ore just because of the layout of the mineralization at Chinchillas there's -- the higher zone is easy to mine. You have to mine at a fairly high rate then to get the pre-strip down to the lower zone. So at the moment, we're modeling 4,000 tonne a day ore from that, which gives you that 1,000 tonne a day sort of free capacity in the plant. And that's why it looks like it can work.

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

Just a few questions from here. Maybe first off, on Puna. Paul, can you remind us of the permitting that's necessary or that's needed to get the project moving in terms of construction?

I could, but I don't want Alan to feel as though he's wasted his night, so I'll ask Alan to go through it.

Yes, the key permit that we need is obviously an environmental approval permit. That's a provincial permit in Argentina. All of the documentation is being submitted, as I say think we said even last quarter. The government is currently reviewing that. There's been some questions backwards and forwards. They also, as they're signatories to ILO 169, they have to do a community consultation process, which they're in the throes of doing. And once all that comes to an end, we should get the permit. That then allows us to get a bunch of other smaller municipality-type permits and explosive permits and radio permits and all sorts of things like that. Some are transferable over from Pirquitas. Others are fresh, depending on what we' using and where we're using. But once we've got that primary environmental approval, then we can start, at least earthworks at the Chinchillas site. Prior to that, some of the works that need to be done at Pirquitas can actually be done within the existing operating permits. So there's no holdback on that work.

Okay. So as you mentioned in the press release yesterday, you're expecting that -- the permitting to be completed sometime in Q3?

That's certainly what we hope to achieve. Unfortunately, it tends to be in the government and the community's hands more than ours. We've responded to everything and presented everything that they've asked for to date.

Okay. Sounds good. And then, Alan, maybe a follow-on question on that as well. As you mentioned in the press release, construction can start as early as Q3 or pre-stripping, Q3 2017. Can you remind us in terms of the time line to eventual production at Chinchillas?

So if we get our permits when we expect to get them, you're right. We would start pre-stripping almost immediately, and then we would expect to have first ore coming over to the Pirquitas plant in the second half of 2018.

And how does that work? I would imagine I think earlier this year, you talked about the workforce already being scaled down at Pirquitas. How does that work in terms of workforce? Would you just kind of hire the same people back? Or how does that gap gets sort of bridged?

It'll be a mixture of people. Fortunately for us, Argentina, at the moment, has actually -- has only 2 projects that are hiring people, and we're one of them. And then there's other projects that are closing down, as you're probably aware, with Pascua_Lama stopped and [Allen Brair] that's coming closer to the end of its life and others. So we've actually been getting quite a strong interest in certainly the senior roles for the Chinchillas project. Because of the physical location, obviously, the local communities around Chinchillas, obviously, want their first chance at working in a mining company in front of the previous employees that were around the Pirquitas mine. And we're obviously going to focus on trying to give them preference. But in general, some of them will be people that were previously working for us, if they're still around and they haven't found alternative roles. And others will be new hires that have never worked before that will need training from day 1 on truck operators and load operators and what have you. And we're seeing strong interest certainly for the senior positions that we've already started hiring for.

And you bring up a good point, Alan, in terms of the local community around Chinchillas. In terms of the consultation process for the environmental permitting, how many different communities are being consulted this point in time?

Well, I think it's about 5 -- 4 or 5 local communities that are at direct impact.

And they're all supportive?

As far as we know, so far, they seem to be, yes.

Great. And then maybe just one last question on Puna here. In terms of the $81 million on 100% basis, that includes other pre-stripping and everything else, right? It includes all the CapEx that's needed?

Yes, that includes all the modifications at Pirquitas. It includes some new and some rebuild equipment and equipment transfers over from the Pirquitas mine to the Chinchillas mine. It includes the infrastructure at Chinchillas connecting in power and water supplies to Chinchillas and some upgrades to the road between Chinchillas and Pirquitas. So the $81 million covers everything, including the pre-strip, start-up costs, people's wages while it's being capitalized on the pre-strip work.

Great. And maybe switching gears a little bit and moving on to Marigold here. I read in the press release that you've completed the deeper phase of the Mackay Pit. Can you remind us again how much of the ore right now is being sourced from the Mackay Pit? And then in terms of mine sequencing for the rest of the year, how that sort of works. Ultimately, I'm trying to get to the point that, I guess, the grade that was stacked in Q2 was a bit lower. I'm wondering if that's going to go back up based on the composition of different pits and the contribution from the different pits.

Well, firstly, Mackay is a large area that has sub pits within it. So we just finished one phase of that went down quite deep in one area. At the same time, obviously, we've moved the big shovel back up to the top of the next phase. That is in ore now and will remain in that phase in ore for at least the next 12 months or so I think it is. And so all of the ore will be coming from the current phase for the rest of the year and probably, half of next year. Grades, I honestly can't remember off the top of my head, but I believe they're slightly better than the 0.31 we've been getting lately. The reason the grade was so much lower at the bottom of the last pit, once silver, the better material was taken off, there were still some lower-grade material at the base that was worth taking out before we started backfilling it.

Yes, it's just worth adding, Cosmos, what we explained. The market is at Marigold because it's a run of mine dump leach. It's just a massive rock-moving operation. You're always better to allow the natural variability to occur to maximize productivity. That maximize the value of the operation. We could move the shovel around just to try and smooth quarterly production, but that would push our mining cost up, so that's not in the best interest of shareholders. So we preferred to educate everyone to say it'll go up and down. Don't be put off as long as we keep on telling you that we're going to meet annual guidance, which is what we said.

Yes, I think I remember that as well when I visited Marigold last year and looked at the different parts of the Mackay Pit. Maybe a follow-up question on that. Paul, you had mentioned earlier to a question about potentially the increase in size of the trucks and then the shovels. Again, that's further away. It could be quite some time away. But could you remind us how big are the trucks -- what's the payload of the trucks right now in the Marigold? And I believe there are pretty big rope shovels here. What's the capacity of those dippers?

Alan, as it is your sand pit. You do that.

Sure. The trucks are 930Es and it's actually 5,000s. It's 330 tonne short tonne target load capacity on each truck. That's about as big as you get at the moment. The hydraulic shovels are 56 tonnes and the rope shovels are 100 tonnes, 110 tonnes per pass and the rope shovel, again, it's as big as they get. PEA is 4,100.

Yes, looking at the specs. And maybe one last question moving on to Seabee and Santoy there. Just want to talk about the mill. Can you just remind us quickly what's the capacity of the mill? I know you went up 1,050. But what's the kind of limiting capacity here either be permits or just the mill itself.

We don't know yet. We've been creeping up. We did a test some time ago and got 1,000 tonnes a day on average through the month. As the mine has been able to supply more ore over the last couple of months, we've kept creeping it up a bit to see what we can do. We achieved 1,049 in June, and we keep having a look to see what it will do as we get enough ore on the surface to be able to turn up the mill a little bit further. Until we see either a physical constraint, a power constraint on the mills themselves or drop in recovery as we push the grind to course. So one of those 3 will be a controlling factor. We don't know which one it is yet. We've got to 1,050. We honestly don't know yet.

Which is a positive. That's the nice thing here. Obviously, in a plant like that, you try and push your limiting -- your production through the limiting capacity of your most capital-intensive part, which on the mill is either the crushing, grinding section. So yes, pleased that we've been able to get it that far. And so as we've said all along, this was an iterative process, see what we think the mill can do while at the same time doing our in-fill drilling to increase the -- or conversion increase the reserve, which we did earlier this year. We saw the significant increase in the reserve there. That's enabling us to put together the new mine plan, which will form the basis of the PEA, which we'll put out in September ahead of the mine visit.

Great. And there's no permitting constraints, right, in terms of the mill capacity?

No.

No.

And then maybe just one last question on that as well. The underground at Seabee and Santoy. I guess, in the end, that's really the constraining factor at this point in time. Is it just a simple as sort of getting ahead of the underground development and getting more working face, access so that you can get the underground mining rate up? Is that sort of like the idea here?

Alan?

It's a combination -- thanks, Paul. It's a combination of things. As we mentioned when we first took over, we discovered that there was some ventilation restrictions and constraints in the Santoy mine. The focus of mining has been switching from Seabee over to Santoy over the years. Our interest in the asset was the wider, higher-grade deposit at Santoy, and that's been the focus of where we've been working. As we've said in the call today, we expect to change the ventilation around this month. And once we've done that, we hope that, that will -- well, we expect that, that will solve a bunch of the ventilation issues as we get more areas open, we can move the equipment around and that's what we've been doing in the last couple of months as we've got some stopes opened higher up in the workings, others down deep. We've been able to switch where the equipment is so as the air consumption isn't concentrated in one area. That's allowed us to get the tonnage up that we saw in June, ventilation in August. Once that's done with the changes in the ground control, which hopefully gets us over that constraint, we'll be able to go back to working on the OE projects focused on underground to where can we go beyond where we are now and then back to the plant again, where is the bottleneck in the plant and then what do we do about that. So as Paul said, it's going to be a continuous incremental thing. Provided the infill drilling continues to add reserve and resource to Santoy, we'll keep trying to crank it up a bit.

Yes. I guess, the most important thing is they're going in the right direction, right, both of the mill and also the mining rate underground?

Absolutely. Yes, what we saw when we, yes, looked forward from the outside was the mine had been operating similar to Marigold for over 25 years, but the first 23 years were relatively boring, focused on Seabee. It was a high-grade Santoy deposit that attracted us. And when we acquired it, that only just started the open stopes on the Western side wider zone. So we always knew that we would see an increase in mining production rate as you get more dirt from open stopes and open up more development headings as you get -- you dig veins down further. We've also had some success converting resource to reserves higher up in the Santoy area. And that's enabled us also to introduce some Alimak stoping, which is what we used over -- the mine we used over at Seabee very effectively on the narrower areas. And so we got our first -- I think the first Alimak stope now drilling ore at Santoy as well. So yes, over time, more faces, wider ore bodies. It all helps to get more tonnes per day out of the mine.

Thank you. This concludes the question-and-answer session. I will now turn the call back over to Mr. Benson.

Okay. Thanks very much, everyone. Just a reminder that the Investor Day in Toronto in September 12 and then the site visit to Seabee. If any of you have an interest in coming along, please get in contact with Stacey in the Investor Relations Department. Thanks very much, everyone. Have a good day.

Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.