SSR Mining Inc (SSRM) 2017 Q3 法說會逐字稿

Good morning, everyone and welcome to SSR Mining's Third 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, operator. Good morning, ladies and gentlemen. Welcome to SSR Mining's Third Quarter 2017 Conference Call during which we will provide an update on our business and a review of our financial performance. 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 will find the information to access the webcast in our news release relating to this call.

Please note that 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 Alan Pangbourne, COO; and Carl Edmunds, Chief Geologist; also present is John DeCooman, Vice President, Business Development and Strategy. Now I would like to turn the call over to Paul for opening remarks.

Thank you, Stacey. Good morning, ladies and gentlemen, welcome to our third quarter call. I'd like to start by addressing the tragic event at Marigold that occurred last week. All of us at SSR Mining are devastated by the loss of our colleagues. During this extremely difficult time, our focus has been on supporting their families and friends as well as our employees at Marigold. I was at the site last week to meet with our staff and to provide my support to Duane and the team. I'd like to recognize our mine rescue team and emergency services for their rapid and thorough response as well as many others from across the community for their support. This incident is particularly upsetting as this is the first fatality in our company's 70-year history and the health and safety of our employees is our highest priority.

Now in regards to the Q3 review, we delivered a solid third quarter with all 3 operations demonstrating strong operating fundamentals and we continue to add cash to the balance sheet while moving forward with a number of initiatives that will support future growth. At Marigold, the team achieved a record total material mined of over 20 million tonnes for the quarter including 7 million tonnes of ore. In the current phase of the Mackay pit, we've encountered more tonnes and gold ounces than the model predicted, which is good in the long-term. However this material is associated with an above average level of clay, which has presented challenges on the leach pad that Alan will discuss later. The impact of this clay on Q3 and Q4 has led us to lower our annual guidance for Marigold by 10,000 ounces to between 195,000 ounces and 205,000 ounces.

Pleasingly strong performance year-to-date at both Seabee and Puna offset this and we still expect to end the year within the previously increased company production guidance of at least 350,000 gold equivalent ounces. At the Seabee, we continue to operate an average mill throughput above 900 tonnes per day despite the operation being impacted by nearby forest fires and scheduled crusher maintenance. Importantly, during the quarter, we delivered a PEA for the Seabee operation which evaluated an expansion case with higher gold production, lower cash costs and low CapEx over at least a 7-year mine life. This is a testament to the quality of the Santoy ore body and is underpinned by significant upside potential through exploration at both Seabee and Fisher properties. The release of the PEA was followed by a site tour of the operation, which was very well received by all who attended.

At Puna, by the end of September, we had already achieved the lower-end of our improved annual production guidance for the year with over 5 million ounces of silver produced. We continue to process lower grade stockpiles at higher sustained throughput levels and expect the operation to end the year near the higher-end of our previously improved annual guidance. At Chinchillas, we continue to move ahead with purchase commitments and construction contracts and expect to receive permit approvals for construction by year-end. Alan will provide more color on our activities later in the call.

On the exploration front, we're confident that our drill programs will add to mineral resources and should replace depleted reserves at Seabee and Marigold. Carl will discuss some of the encouraging results we've received at each operation. Financially, this was a strong quarter with all 3 mines contributing over $30 million of operating cash flow. This along with $54 million from the sale of a portion of our Pretium shares resulting in cash of $424 million, a $70 million increase from the previous quarter. We also retained $110 million in marketable securities at quarter-end.

As you can see, we've continued to strengthen our balance sheet in addition to investing [over $17 million] in our business during the quarter. As previously announced, following the sale of an additional 1.5 million Pretium shares in October, we now hold 9 million shares, which represents a little less than 5% of the company. We have viewed our position as non-strategic for some time, so this was done in a timely manner to ensure we maintain a strong balance sheet considering the upcoming Chinchillas project development. With that, I'll turn the call over to Alan, who will discuss our operational performance in more detail.

Thank you, Paul. Paul has already spoken about the tragic incident at Marigold. I would like to reiterate at this difficult time our sympathy and condolences go to the family and friends of our 2 colleagues. Returning to our quarterly performance, in the third quarter, production exceeded 77,000 gold equivalent ounces with cash costs of $757 per ounce. At Marigold, we produced over 38,000 ounces of gold in Q3 as the impacts of the lower grade ore that was stacked in Q1 and Q2 flowed through the leaching sequence. Cash costs increased to $684 per ounce due to the higher inventory cost from the lower ounces stacked in Q1 and Q2. During Q3, mining rates continued to improve and exceeded 20 million tonnes as the impact of shorter hauls were realized. This is a historic record tonnage movement. Mining costs dropped to a $1.52 per tonne in the quarter as a result of the higher total tonnes moved. The grade mined in the quarter of 0.31 was similar to the Q2 grade and is below the average reserve grade of 0.45 grams per tonne. As we move deeper into the current phase, grades are expected to rise. During Q3, as Paul mentioned, we've experienced several issues related to higher-than-expected clay content in some of the ore in the higher areas of the current phase. This has caused us to experience ponding issues on the pad and as a result, lower the irrigation rate on these areas. This is expected to be a short-term impact and overall recoveries will be maintained. It did however result in a slower leaching rate in Q3 and will continue to have some impact in Q4. Hence, the slight reduction in annual guidance for Marigold.

Moving on to Seabee, we produced over 18,000 ounces of gold at a cash cost of $634 per ounce. At the Santoy mine, the major change in the ventilation system was implemented in August and this has allowed for higher quantities of fresh air to be directed to the lower levels of the Santoy mine. Ventilation should no longer be a constraint including the higher planned mining rates at Santoy. Mill feed grade of 7.03 grams per tonne was lower when compared to the previous quarter. This was mainly due to the sequence of stopes being mined at Santoy and several of the remaining lower grade stopes mined in Seabee. The mill performed well in the quarter.

Additionally, in Q3, we released the results of the Seabee PEA evaluating an expansion case of up to 1,050 tonnes per day, producing 100,000 ounces per year over a 7-year mine life. In October, we also filed the PEA technical report on SEDAR. As I mentioned at the Investor Day and during the Seabee site tour, we're working towards understanding how we can reach even higher tonnage rates through the mill. So I'm happy to report that in Q4, we've had several days at over 1,070 tonnes per day and have even achieved 1,103 tonnes on one day. So Seabee despite the operational impacts of the forest fires and planned crusher maintenance, we continue to deliver strong production and we expect that Seabee will achieve the top half of the previously improved annual production guidance.

At the Puna operations in Argentina, we continue to successfully process medium and low grade stockpiles at the Pirquitas plant while development of engineering and purchasing activity continued for the Chinchillas project. The process plant continued to operate well at around 5,000 tonnes per day for the quarter. As per our process plan, the mill grade this quarter started to drop as the higher grade stockpiles were exhausted. Despite this, grades continue to be higher than expected and this led to several positive impacts and allowed us to produce 1.5 million ounces of silver and reach the bottom-end of our annual guidance of 5 million ounces with 1 quarter still to go. As expected, recoveries in concentrate grades in Q3 were lower than Q2 as we continue to process lower grade stockpile. This led to higher cash costs of $12.76 per ounce as production levels declined. However, we still remain well within our annual cost guidance. Cash costs include the accrued costs associated with stockpiles of approximately $5.20 per ounce in the third quarter.

At the Chinchillas project, we continued the recruitment of key operational personnel. The preliminary pre-stripping life of mine plan and production schedules were completed in September with detailed startup planning now being completed by the Chinchillas technical group. The project execution is well under way with purchase commitments being made on all of the critical long lead equipment the Pirquitas area go. Commitments associated with the Chinchillas site include all mining and support mobile equipment. Construction contracts for both Pirquitas and Chinchillas have been issued for tender and award is anticipated in Q4 2017. The project is still awaiting permit approval to start construction. The project planning and execution is moving forward to maintain momentum with the objective of having the first ore fed to the Pirquitas mill in the second half of 2018. As we complete our community consultation in association with the government, we expect to receive our permits before the end of the year. We also note that the recent mid-term elections in Argentina showed strong support for the pro-investment Macri government. So in summary, all of our operations continue to deliver strong production and cost and we remain focused on meeting our annual production and cost guidance. I'll now hand over to Carl who'll take you through our exploration activities.

Thank you, Alan. At SSR Mining, our exploration strategy has been one that strongly supports activities at our mines while maintaining a disciplined approach to greenfields activities. The plan offers the most immediate impact for reserve and resource growth, but keeps some exposure to new discovery. At each of our North American mine sites, we budgeted $5 million for 2017 and through the third quarter, we remain on track in respective expenditures and activities.

Greenfields work saw the completion of our first drill program at the early stage SIB project located in northwest BC and I'll now go through some of the details for the quarter's activities at each of these work areas. At the Seabee gold operation, our main objectives throughout the year have been on mineral resources conversion to reserves and upgrade of inferred resources. Work done during the quarter amounted to 15,810 meters of diamond drilling with 57% at Santoy underground, 27% at Seabee underground, and the remaining 16% being completed from surface at Santoy. The targets drilled at Santoy included Gap 9A through 9C, 8A, 8A Footwall and Gap Hanging Wall zones. Several significant intersections were received on these structures, which we expect will contribute to resource growth and conversion at year-end.

Highlighted examples include 1.3 meters of 14.4 grams per tonne gold and 2.4 meters of 14.8 grams per tonne gold at Gap 9B along with 2.1 meters of 24 grams per tonne gold at the 8A target. Greenfields exploration on the Seabee property included the completion of the detailed soil sampling to investigate the down-ice dispersion patterns of anomalous gold. This work will prove valuable on our other regional targets and we identified 2 other anomalous areas near Santoy that are worthy of follow-up.

At the adjacent Fisher property where we have an option to acquire up to an 80% interest on the 34,000 hectares south of the Santoy mine, we completed our prospecting, mapping, and geochemical surveying of the soil and till over key areas of the property. The program results were received and are being compiled with recently acquired high resolution geophysical data. The field program discovered 2 new gold showings located 2 kilometers and 8 kilometers south of the Santoy mine portal. We plan to follow up on these and other targets generated from the summer seasons work with drilling commencing in the first quarter of 2018.

Shifting over to Marigold, third quarter exploration work has been targeting resource to reserve conversion in close proximity to existing open pit reserves. 39 reverse circulation drill holes were completed for a total of 13,167 meters bringing the total for the year to 138 holes and 38,752 meters. Areas drilled include the central Mackay pit, East Basalt, and Valmy pit for reserve addition and Red Dot and its northern extension, which offer opportunity for resource additions.

During the quarter, we announced exploration drill results to support our expectation that we will replace our 2017 depleted mineral reserves and since that date, we have received additional encouraging results that are expected to contribute to resources at Red Dot including a drill hole that intersected [47 meters of 0.79 grams per tonne gold]. This result combined with others in close proximity increases the volume and grade compared to previous models. This area is located between 100 meters and 200 meters down dip and west of the current Mackay reserve pit.

On the northern extension and about 800 meters away at North Red Dot, we received drill results supporting the presence of a higher grade zone, 200 meters west of our currently modeled mineral resource pit. One drill hole returned 50 meters of 0.95 grams per tonne gold where we currently show average grade mineralization that is not within a resource pit.

Moving to the early stage SIB exploration project located near the high grade past-producing Eskay Creek mine, we completed 9,336 meters of diamond drilling in 12 holes. At SIB, we hold a 3-year option to acquire a controlling interest in the property and have met the first year's spending requirements. All 12 drill holes encountered the targeted Salmon River formation geology over a strike length of 1,100 meters to a depth of 700 meters below surface. 9 of the holes returned [off-hole] electromagnetic conductors and 2 of those with off-hole conductors have encountered 10 to 12 meter intervals of sulfide vaning and breccia that returned anomalous base and precious metal values. Analytical results are pending for 7 of the 12 holes and once all results have been received, we will review and plan our next steps.

In summary, we feel confident in meeting our (inaudible) objectives of replacing mine depletion through conversion of resources and increasing resources at our North American operation. The next quarter will see further infill and extension drilling at Santoy gap, Gap Hanging Wall and [8A 4CB] while work at Marigold will be targeting further resource addition on [volume]. With that, I'll turn the call over to Greg for a discussion of our financial results.

Thanks, Carl. The quarter was quite straightforward, so I'll keep my comments brief. As expected, the third quarter was not as strong as our previous couple of quarters, but we had a number of notable achievements. Our record of adding operating free cash flow extends to its eight quarter in a row and 11 out of the last 13 quarters. Puna operations continues to outperform, which has been a nice surprise as we ramp up to invest in that operation. And our year-to-date financial performance remained strong and right on track.

For the quarter, we generated revenues of $106 million and income from mine operations of $22.5 million. G&A was somewhat elevated due to non-cash stock-based compensation expense while cash G&A spend remained on budget. Reported net income was $1.8 million or attributable $0.01 per share with adjusted attributable net income of $4.4 million or $0.04 per share. Cash flow generated by our operations remained strong as cash generated by operating activities was $30 million taking us year-to-date to $100 million, which even outpaces our strong 2016.

Third quarter capital spending remained consistent with the second quarter at $17 million and as a result, free cash flow from operations was [approximately $13 million]. So our operations continue to provide excess capital for reinvestment. Our cash position was further bolstered by our sales of a portion of our Pretium holdings. As a result, we ended the quarter with $424 million in cash while still retaining a position in Pretium that exceeded $100 million.

Our ability to drop cash to the bottom line from sources across our asset base remains enviable. Our working capital position now totals $684 million showing the resources we have to generate future value for shareholders. Our $75 million credit facility remains completely undrawn and provides flexibility should we require it. Our operations continue to manage and perform on the metrics they can control, tonnes moved, tonnes processed and holding site spending tight. As a result, cash costs for the quarter remained on track to our guidance despite some headwinds from foreign exchange and moderately higher energy prices. The positive cost performance combined with the lower capital intensity of our assets continues to maintain all-in sustaining cost at each operation below $1,000 per ounce. With those comments, I'll turn the call back to Paul.

Thanks, Greg. In summary, in the third quarter, we delivered solid operating results and at the corporate level, we expect to meet our improved mid-year guidance. We continued to strengthen our balance sheet, which posted over $424 million of cash and $110 million in marketable securities at the end of the quarter. The quarter was highlighted by the delivery of our Seabee gold operation PEA as well as our Seabee site tour on Investor Day, all of which were extremely well received by the investment community.

Looking ahead, we will continue to deliver on our goals to create value and growth for our shareholders through disciplined operating, exploration, and investment activities. As you can imagine, the last few days have been very hard for all of us at SSR Mining and I'd like to thank those who've reached out with kind words and offered assistance including local communities. The safety and well-being of our employees remain paramount and our commitment is only reinforced through this event. This concludes the formal remarks of our earnings call. I'll now pass the line over to the operator to take any questions you may have. Thank you.

Thank you, Mr. Benson. (Operator Instructions) Our first question comes from Rahul Paul from Canaccord Genuity.

You explained that the -- you indicated that the main objective of exploration in Q3 was resource conversion and you also mentioned that next quarter you expect to do more resource expansion drilling at Marigold, but when do you expect that focus to shift to resource expansion at SIB and when should we expect the next exploration update?

Thanks Rahul, I'll pass that one over to Carl.

Yes, the resource expansion part of Seabee, there is a component of it that's done throughout the year as they do infill and then build off of that conversion process. So you're seeing and what we presented here a little bit of that work that's always ongoing. There is another component of it that is seasonal and that's as we get access to being able to drill off the ice and so it's confined to the winter months. So for me that's the more exciting part because we go and drill some of the targets that are further afield and could really yield some larger rather than incremental additions. So that's in the -- typically in the first quarter leading off into the early portion of the second quarter, just depending on how the season goes.

Perfect, that's helpful and then moving on to the SIB project, it looks like you've met the first year's spending requirement. Do you see any benefit with accelerating the program there or is that something that you'll decide when you have all the pending assays or is it just too early to say.

We're still compiling data. We're just getting the last assays in presently and over the remaining portion of the year, we'll be making up our mind about what our next moves will be.

Our next question comes from David Medilek with Macquarie.

Thank you for taking my questions. I have 3 questions. Firstly at Marigold, regarding the areas of higher clay content in the current phase of the Mackay pit, is it occurring in discrete areas that can easily visually be identified and separated or is it somewhat pervasive and is the clay stratigraphic related or is it alteration related?

Alan, do you want to answer that one?

Sure, Paul. It tends to be generally pervasive in the upper levels, it seems to be stratigraphically controlled. So we expect as we get deeper and less oxidation, we get more rocky material and that's certainly been the history in the previous areas where we've run into the same issue.

I'll just add the unusual thing about this, if you find more gold ounces, you normally don't have a problem. Here it is just that we found more gold ounces with the more clay and if you don't have rock to mix it with, that's where you can get the challenges on the leach pad, but they're doing everything they can to work through that.

And what is the rough kind of blend ratio that you're using?

Alan?

I really don't have that at hand at the moment, David, it's coming out of the next phase and I'd rather not guess.

Okay and my next question is in terms of the fourth quarter production at Marigold, could you provide some more color on the key factors that you see driving an increase in quarterly production?

Alan?

Well, obviously moving the tonnes necessary is a key factor and that unfortunately has been impacted over the last few days with the unfortunate incident we had. The other one is we can blend the material and get the irrigation rates back up so as the solution gets through the pad and we get the gold on to the carbon and we're seeing solution grades coming up, so we are reasonably confident we'll make our guidance.

Right. And last question from me is on the positive tonnage reconciliation at Marigold, what is the approximate percentage that's being encountered and why do you think this is the case?

Alan, do you have a comment on that?

Thanks, Paul. The reconciliation is probably 15% maybe ounces. Tends to be in the very low grade section and we're trying to work out what's causing it. We're seeing it in the drill holes, so obviously as we see the grades that are above cut-off grade, we take it and put it on the heaps and we're doing a bunch of testing around assay techniques and whether it's precision and trying to understand where it's coming from.

Yes, just sort of reinforce with that one, you've got a couple of things there, obviously that's saying blast holes, you are getting a lot more data and so you can see with more data, you are seeing more information, more gold. The other path, remember, keep in mind, there is no bottleneck. So although it's low grade, if you had a milling operation, you'd always be worried that you're replacing higher grade with lower grade, but because it's a dump leach, you just put it all on the leach pad.

The next question comes from Dan Rollins with RBC Capital Markets.

Just on Marigold, just with respect to the this high clay content potential, just the negative impact it could have on near-term connects to the leach pad, how -- is this extending your leach cycle to get it basically first [cyanide on to actually pulling the gold to a port basis] is it extending it by 3 months or is it something little bit less material and really just requires a lot more cyanide and some better fluid mechanics?

Alan?

It's a combination of things that's impacting the leach cycle, it's not just the clay, it's also the high on the pad. So the leach cycle is dependent on the irrigation rate and we've had to slow down because of the clay content and as we get the blend higher into rockier material or we get deeper into the phase and get more rockier material, we can take that irrigation right back up, but you've also got the effect as the heaps are getting older and we're getting higher. Solution just physically takes longer to come through the heap. So you see a slowing -- apparent slowing in the leach rate. The leach rate is still the same, it's the transport rate from the 200 feet above last [stack] or more to the bottom.

Okay and when do you -- how high -- how many more stacks do you have left on those pads before you start to again stacking on some fresh liner.

We have planned for another pad as we've said before, it's usually every other year or so. So there is a plan for a pad next year.

Okay, perfect. And then Paul, maybe you could just touch base on sort of the future plans for the Pretium stake. Obviously you are just now below 5%. Stock has been sort of rebounding since the levels that you guys were selling at. Is it your intent just to continue to hold that as a source of future funds or are you going to be looking to opportunistically reduce that over the next 6 to 12 months?

We're very comfortable with the level where it is. Obviously, before we did the sale, it was a significant proportion of our market capitalization. Now we're down just below the 5% level. The amount we sold was more or less equal to our capital requirement for Puna next year. So it was basically keeping that balance sheet nice and strong, but yes, very comfortable at the levels we are at the moment.

Okay and then just with hedging, obviously, oil, energy prices are a large component there at Marigold, again, we're still in a low energy price environment, but we have seen about $5 move on oil recently. Have you guys looked at potentially putting in some protective hedges here going forward or maybe using a laddered approach consistently over the next few quarters?

We do have a program in place, which has been there for quite a while. I'll let Greg talk to that.

Thanks, Dan. Yes, we have over the last year or so, have put in place some protection on the diesel consumption at Marigold. We have about 30% of the next years protected. What we've tended to do is try to protect prices above kind of $55. So those positions are kind of marginally in the money at this point and that would be how we continue to look opportunistically to put it on. We try to take advantage of market conditions. We're not just going to -- we're not going to chase the market. So we try to be opportunistic on those things.

And sort of cap and collar, so trying to avoid any negative impact of high spikes, but then pay for it by giving away if it happens to drop to very low levels.

And you looked at basically keep maybe up to [about 12-months forward], do you?

Yes, we can go out further than that, we do have some positions that extend out into 2019. So we can go out further than just the 12-month period and we would tend to do that again depending on the forward curve of the market, which has flattened and that provided some opportunities to go at longer term.

But you'd say 30% for next calendar year?

For '18 and then it would drop beyond that.

Our next question comes from Michael Gray with Macquarie.

Point this for Carl, just another question on SIB, are you considering this 1.1 kilometer by down to 700 meter testing, 9,000 meters technical success and can you comment on -- a little bit more on the mineralization? Is it semi mass of sulfides, mass of sulfides? And then finally, do you have the information you think you need to start to vector in on this package vis-a-vis alteration and geological markers?

Yes, I think I'll pass that call to Carl.

Thanks, Paul. I think you're aware, I've worked up there in that district back in the [Corona Homstead days] and getting to the first point about, do I consider it a technical success? I would say yes. We've intersected the stratigraphy in the package that we were looking for. For me, that's seeing the rilite and the mafic volcanic and the mafic volcanic derived mud stone sediments or effectively glass, we're seeing that. We see in the nature of the -- so we've got that package. A failure there would have been to hit intrusive or something else that just totally precludes any possibility of VMS. The other thing that I was looking for was, is it completely dead or not, do we see any sort of sulfides in the footwall rocks and we're seeing some of that. So the nature of that is it ranges from 1.5 meters and we have some photographs that are showing the sort of semi massive pyrite with a little bit of base metal sulfides with it that can be over a narrow width and we've got some pictures of that that are on the website there. Up to some of that, that's more of a string vane type setting, it's up to 20 meters that we got in hole 149 and that had a weekly anomalous section in it also. So we're seeing evidence of sulfide formation in the footwall rocks that I was also encouraged by and also there's things in the trace element geochemistry of the whole rock, I should say the whole rock geochemistry, looking for potassic alteration and we're also seeing that. So we're putting together some of the geochemistry and that's part of the compilation phase that's going on right now as we decide how we're going through with it. The other thing I'd want to add is that as a fail-safe for any nearby conductors we run down hole geophysics, and I made mention to that in the description, but a majority of the holes have those in them. They are not high-quality conductors, but they are present and a few of the holes have conductors that it doesn't matter whether it's our loop that was set out on the east of the drill pattern or to the west, it's still recording the same orientation and the same offset from the hole. So there's some other features in there that we have that are worthy of follow-up also. I should just wrap up that there is -- we've looked at almost 1,200 meters or 1,100 meters of strike length. There's a southern extension to the same geology too that we can look at and also in the final holes, we were seeing that the stratigraphy was getting involved in hole flattening and trending so drilling around in a synclinal form off to the west of us which is reachable and offers another exploration direction.

Okay and maybe just a quick follow-up on Eskay, in your experience what is the conductivity like the mass of sulfide there in the past, good conductors or weak or any color there?

Weak, [though] not a conductor but that -- it's mineralization -- it's transported so it's individual grains. So it tends to be a very poor if it all conductor. So my approach on doing this was it's a fail-safe and there's no guarantee that the next VMS up there might not be a good conductor so we should do it.

The next question comes from Cosmos Chiu with CIBC Asset Management.

Just a quick one on Marigold, you talked about all the longer leach cycle, the clay material. Do you have any idea how much longer it is, I guess what I'm trying to get to is you're saying that it could impact -- it has impacted Q3, it will impact Q4, but is there any impact on Q1 or would you expect some of the material the clay material that you've stacked in Q3 to kind of get leached out by Q1?

We're in the process of running the budgets now. So we don't have a view on that at the moment. We'll put the guidance out early in the new year.

And Paul, I guess this issue here is certainly something that you had contemplated in the past. I was reading up on a technical report from before, it said that when you encounter some of this clay material, you want to mix it with about 40% rocky material, is that still like the optimal mix and I guess that's not what you are getting to at this point in time?

Alan?

Can't really comment on the right mix. We are adding as much of the rockier material as we can at the moment and it seems to be alleviating the problem and we're getting better percolation.

Okay and now maybe switching gears a little bit, Paul, I'm still kind of curious about the timing of the sale of the Pretium shares. I know you had talked about the need to fund Chinchillas, but looking at your balance sheet, you have over $400 million in cash, Chinchillas will cost less than $100 million in terms of CapEx. So just maybe a bit more color on that if I can ask and certainly market speculation is that the sale was for an acquisition by SSR Mining. Maybe a comment on how you view your M&A strategy, I know you've talked about this in the past, but maybe in the context of what happened, maybe you can reiterate?

Sure. Unfortunately not a lot more color other than to what we've said. We thought it was an appropriate time. We'd done well out of holding those shares. We've sold down some. As I said before, it was over 10% of our market capitalization. So we viewed it as appropriate considering we were then going into a spending cycle. Yes, I heard the reaction that someone interpreted that we're going to use the cash for M&A, absolutely not. That's not what it was there for is exactly those reasons of keeping the balance sheet strong. With respect to our M&A strategy, we are very clear. I know shareholders get disappointed when CEOs saying trust us, we're not going to do any M&A and then turn around and do something. We are very transparent. We say we continuously look for opportunities both internally and externally. We are in the enviable position of being able to fund all the growth options we have internally, but we look externally. We've had a good track record. If you look over the last 3 years, we've done the Marigold acquisition, the Valmy acquisition, the Chinchillas and the Claude acquisition and we've done well with that. We continuously look -- I made the point at the Investor Day since we did the Claude acquisition, we've looked at 6 opportunities under [CA] and decided not to make a proposal both at assets and companies and the reason why, we couldn't see any value for our shareholders. So it's not a comment on the quality of the company or the project, we just couldn't see value. So we will continue to look, but we will be as disciplined as we have in the past. So at some stage in the future I'm sure we'll do some other sort of investment or transaction.

Great. And I may be looking at [CV] here, certainly you've talked about why the grade, the head grade was lower in Q3 and grades will be higher in Q4. Are we looking at closer back to sort of reserve grade in Q4 or what are we looking at?

Alan, your comment?

We generally don't try and give guidance on a quarter-by-quarter basis. We obviously need high grades to meet the top-end of guidance as we've suggested we expect to do.

Got you, okay and maybe one last question here, you've talked about the unfortunate incident at Marigold, could you maybe kind of reiterate or educate me on how the U.S. system works in terms of the investigation. Do they have a full year from the Ministry of Labor in terms of an investigation and what's the potential outcome here in terms of based on the findings of the investigation could there be a potential for fines or criminal charges or anything like that?

Just let me say a couple of things and then Alan can follow-up. [Msure] is a federal body and they are the ones who undertake investigation. The state also has mines inspectors but it's Msure that runs the investigation. We work with them fully cooperatively and then we will -- once they are complete, we will also undertake our own investigation. Alan, any other comments you want to add?

Not really. I mean we are gearing up now to start our own internal investigation. Msure has been on site continuously over the last week and a half. Really don't want to try and guess what the outcome of their investigation will be until we actually get to see it. They've taken a mountain of evidence away and they'll go through that over due course and we continue to help support them in any way we can.

But Alan, they have a full year to investigate, right? Is that correct?

I've heard 180 days, but I'm not sure.

180 days okay, I'm not sure. Okay.

Our next question comes from Robert Reynolds with Credit Suisse.

2 questions, first one is at Puna, how much material is left on that stockpile and what's the estimated grade?

Just what we've said is that there's a -- we are processing through stockpiles. We've got enough to see us through into midway through next year, obviously with stockpiles, you tend to mine the highest grade first and just work your way through lower and lower grades. So I'd expect it just continue to decline gradually from those levels we're currently at Alan?

That's correct, Paul. We started with best most recent highest grade stockpiles and we're presently surprised. We sample in front of ourselves. So we've got some idea of what we expect to get and as I said earlier, we've exhausted the highest grade stockpiles. We're now on to the medium grade stockpiles. You've seen the grades in the quarterly report and we expect those to keep dropping over time and as Paul said, we think we've got enough to get us into mid-2018 by which time we expect to have Chinchillas ore starting to come through.

So that would be mid-2018 at the processing rates that we've seen year-to-date, just grades drawn.

Correct.

There is no reason to slowdown.

A capital allocation question then, is buybacks a subject that ever come up with your board or is it something that you would consider maybe putting in place opportunistic in CIB?

We discuss capital allocation with the board on a regular basis. Obviously, our balance sheet has continued to grow over recent quarters, over recent years, if you go back to when we acquired Marigold $2 68 million in cash back into 2014. So, we've continued to grow cash, it is a question that we consider at the moment, is not on our immediate agenda, but yes, we're going through that budget cycle now the way we look at capital requirements over the next 12 months and longer, and that obviously is a typical time when people can make those sorts of decisions.

(Operator Instructions) Our next question comes from John Tumazos with John Tumazos Very Independent Research.

So I was going to ask you questions about acquisitions or share buybacks because those already came along. It is quite remarkable that your stock is around 10 and hasn't risen more with your large cash balances and the good acquisitions and the great attempted acquisition you made a year ago concerning [half of] Kirkland Lake. Do you think that buyback should be a bigger priority and there's a particular mechanism the wood company Weyerhaeuser used where it had shares in 2 other companies it [sold] divisions to and it swapped shares of Domtar and shares of a homebuilder to buy back its own shares. Is such a thing as swapping PVG shares for SSRM directly?

I don't know about that specific case that you're talking about. I'm sure Greg will immediately go and look it up after the call. As I said it's just one of those things that we do consider, but certainly our balance sheet has improved continuously and fairly rapidly. So we are entering into the position where that's a totally legitimate question. We haven't made any decisions around that at the current time.

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

Thanks very much, operator. Thanks very much everyone for joining our call today and look forward to the next call. Thank you very much.

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