SSR Mining Inc (SSRM) 2018 Q4 法說會逐字稿

Good morning, everyone, and welcome to SSR Mining's Fourth Quarter and Year End 2018 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 fourth quarter and year-end 2018 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 that 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; Kevin O'Kane, COO; and Carl Edmunds, Vice President, Exploration. Also present is John DeCooman, Senior 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, and welcome to our call to discuss our operating and financial results for the fourth quarter and full year 2018.

It's important to note, 2018 was a year of transition for the company, as we process stockpiles at Puna where we brought the new Chinchillas deposits online. Pleasingly, it was another successful year as we continued to deliver on our strategy of creating value for our shareholders. As we start 2019, we're pleased to have 3 strong operations, each providing near-term production growth, good mine life and significant exploration upside.

In 2018, our continued focus on operational excellence resulted in our seventh consecutive year of achieving production and cost guidance. The strength of our portfolio and performance is reflected in our balance sheet where, after capital investments in Puna and our successful strategic inventions in SilverCrest, we ended 2018 with nearly $420 million in cash.

At Marigold, strong results in the second half of 2018 drove production to 205,000 ounces, the second highest in the mine's nearly 30-year history, eclipsing the top end of our revised production guidance. The impact of our expanded haul fleet and increased truck availabilities continues to drive record material movement as of evidenced in the second half of 2018, which positions us well for growth in 2019 and beyond.

At the Seabee Gold Operation, we had another record-breaking year, benefiting from higher mine grades and OE initiatives, that increased mill throughput, producing nearly 100,000 ounces of gold. Of note, in the fourth quarter, we produced 20,000 ounces of gold at a margin of approximately $500 per ounce due to a robust grade of 10.2 grams per tonne.

At Puna Operations, we declared commercial production at the Chinchillas mine on December 1, 2018. The development of the Chinchillas mine represents a high return, low capital project that extends Puna's operating life just as precious metals prices are beginning to tick up. Importantly, all 3 operations have significant mine lives, and we are continuing to invest in the upside potential we see.

In 2018, we once again had exploration success at both Marigold and Seabee and built on our track record of minimal reserve growth. At Marigold, we converted 460,000 ounces of gold to Mineral Reserves from Red Dot Phase 1 and Mackay. We continue to evaluate the equipment replacement study and expect to release an update by midyear.

At Seabee, we increased Mineral Reserves by nearly 40% and have now increased our reserves by over 100% since we acquired the mine in 2016, while mining over 225,000 ounces during this period.

In 2018, we also executed our first strategic investment in SilverCrest Metals. Their Las Chispas project represents exposure to an exciting high-grade development project with significant exploration upside in a favorable mining jurisdiction. We look forward to participating in SilverCrest development progress and exploration success over coming quarters.

So in summary, 2018 was another successful year for SSR Mining, and I'd like to thank our employees for delivering these great results that have positioned us for a year of growth in 2019.

With that, I'll turn the call over to Kevin, who'll discuss our operational performance in more detail.

Thank you, Paul. Firstly, we continue to ensure that the safety of our people is the highest priority across all our operating sites and the rest of the company. We remain committed to driving progress and the implementation of effective controls for critical safety risks, and this remains a key focus for SSR Mining. We are working to reduce the number of accidents at our operations, and we have reduced the severity of the accidents that did occur.

Operationally, 2018 was a successful year across all 3 sites, as we achieved overall company production and cost guidance for the seventh consecutive year. In total, we produced over 345,000 gold equivalent ounces with a cash cost of $736 an ounce. At Marigold, we produced over 205,000 ounces of gold, surpassing the upper end of our revised production guidance and representing the fourth consecutive year of production over 200,000 ounces. Cash cost was $723 per ounce.

As expected, gold production in the second half of 2018 was stronger than the first half of the year, as we benefited from increased ore stacking rates and faster leaching kinetics. During the quarter, production totaled 54,000 ounces of gold and cash costs were $760 per ounce, predominantly reflecting longer haul distances. During Q4, with a total of 17 million tonnes of material, a decrease as compared to the record achieved in Q3, as mining rates were impacted by planned electric shovel maintenance completed in October and weather delays in December, but these were partially offset by improved haul truck availabilities.

The mined grade increased in the quarter to 0.34 grams per tonne, a 6% improvement over Q3 due to mining deeper in the current phase of the Mackay pit, but remains below the average reserve grade.

Looking ahead, we remain focused on delivering near-term production growths at Marigold as outlined in our 2019 guidance, while evaluating upside through the equipment replacement study.

Moving on to Seabee. The size performance for the year was exceptional, achieving strong results in multiple areas, demonstrating the team's dedication and focus. For the year, the site achieved its fifth consecutive annual production record, producing over 95,000 ounces of gold. In Q4, we produced 20,000 ounces of gold, a decrease as compared to Q3 due to gold ounces contained in circuit and timing of gold pours at year-end. The mine continued to deliver excellent margins as cash costs for the quarter were $502 per ounce, in line with our annual cash cost of $505 per ounce. The milled grade of 10.2 grams per tonne in Q4 continued to benefit from increased development ore from the high-grade Santoy 8A zone.

In 2018, we processed a record of over 350,000 tonnes, averaging 964 tonnes per day, 6% higher than last year. Mill freed grade improved to 9.2 grams per tonne, representing an 11% increase as compared to 2017. With the mine now being in the limiting capacity, we will increase the mining fleet this year by adding 2 underground haul trucks and 2 scoops to be delivered over this year's ice road, which remains within the plan we set out in the 2017 PEA.

Additionally, given the strong exploration results, which Carl will talk to later, we are investing in an expansion of tailings capacity in excess of that contemplated in the 2017 PEA. So we are very optimistic that Seabee will continue to improve its performance and set new records again this year.

At Puna Operations, we successfully transitioned to Chinchillas ore and declared commercial production for the Chinchillas mine on December 1, 2018. For the year, Puna Operations produced 3.7 million ounces of silver, 8.8 million pounds of zinc and 3.1 million pounds of lead. In Q4, silver production was 1.2 million ounces, an increase of 79% compared to the third quarter as the operation benefited from increased tonnage of higher-grade Chinchillas ore. It is worth noting, that in January, with ore sourced exclusively from the Chinchillas mine, we achieved a 3,900 tonne per day mining rate. In the first quarter, the transition from the processing of Pirquitas stockpiles to higher grade Chinchillas ore resulted in cash cost of $15.02 per ounce of silver.

Annual cost -- cash cost were $15.91 per ounce as byproduct credits were lower-than-expected due to timing of concentrated sales that were sold subsequent to year-end.

Having declared commercial production our focus now shifts to steady-state operations and optimization efforts at Puna. While there remains some Chinchillas project scope to be completed in the first quarter of 2019, including completion of various infrastructure at both the Chinchillas and Pirquitas sites, the project remains on track to be completed on budget.

Turning to projects, during 2018, we completed studies looking at a potential Pirquitas underground to supplement Chinchillas feed and a potential underground mine at Pitarrilla in Durango, Mexico, focused on the higher-grade, deeper sulfides. The study showed both projects were viable at spot prices but offered single-digit IRRs. We will reassess both projects in the short term for ways to improve project economics.

At the Pirquitas underground, as Carl will discuss, we have allocated an exploration budget to test possible extensions to the mineralization that could improve the project's economics. At Pitarrilla, we are reviewing the geological model to determine if there are areas with potential for -- to define higher grade.

So in summary, all of our operations finished the year delivering solid production and cost performance, and we achieved our annual guidance. 2019 will also be a very significant growth year for us with expected record production at both Marigold and Seabee and the ramp up to steady-state operations at Puna. This is expected to drive growths to nearly 400,000 ounces of gold equivalent production and $700 per ounce cash costs.

I will now hand over to Carl who will take you through our exploration activities.

Thank you, Kevin. Our 2018 exploration activities at both North American operations, successfully expanded Mineral Reserves over and above mine depletion, reflecting our primary focus on conversion for the year. At Marigold, we converted, inferred and augmented, measured and indicated resources through infill drilling and made advancements towards our ultimate goal of converting Red Dot's million ounce resource to Reserve by midyear 2019.

At Seabee, we successfully converted resources to Reserves at Santoy, while continuing to generate and drill test early-stage targets on the Fisher property.

Initially, I will discuss our year-end 2018 Mineral Reserves and Mineral Resources estimates, followed by a summary of our 2019 exploration activities. Note, that we report our resources inclusive of reserves. Marigold probable Mineral Reserves are 3.3 million ounces of gold, representing an increase after depletion as compared to 2017 and at a higher average reserve grade. The increase is due to Mineral Resources convergence success at the western phases of the Mackay pit and Red Dot Phase 1.

At Mackay and Red Dot, infill drilling activities collectively added 460,000 ounces of gold while a minor pad inventory changed accounted for a further 50,000 ounces. Mining depletion amounted to 320,000 ounces, while model assumptions reduced low value reserves a further 80,000 ounces, resulting in a net year-over-year addition of a 110,000 ounces. It is worth noting that the 80,000 ounces labeled as model assumptions on the accompanying slide were removed due to better long-term mine planning. Our 2017 mine plan correctly identify this as ore, albeit at a very low margin.

Work completed in 2018 combined improved planning, sequencing and the effect of time value of money, which removed these marginal ounces while increasing the NPV at Marigold by tens of millions of dollars.

Indicated Mineral Resources totaled $5.56 million gold ounces while Inferred Mineral Resources totaled 400,000 ounces, reflecting our successful conversion focus.

Now I'd like to bring your attention to the next slide, which shows a cross-section through Mackay and Red Dot. Approximately 350,000 ounces are attributable to the partial conversion of the eastern portions of Red Dot while the remainder is from the western phases of Mackey. Pleasingly, results from the 2018 drilling, along with the revised mine planning sequence converted the eastern portion of Red Dot resources to reserves using current model assumptions. We refer to this added reserve as Red Dot Phase 1. We are currently completing geotechnical drilling to the west on this cross-section to understand final Red Dot slope designs. This drilling and the equipment replacement study will determine if and how much of the remaining Red Dot resources convert to reserves. We remain on schedule to complete the equipment replacement study by midyear.

At our Seabee Gold Operation's, proven and probable mineral reserves increased by nearly 40% compared to 2017, now totaling 608,000 ounces of gold and underscoring a successful year of exploration, conversion and development. Importantly, the added reserves are maintaining Santoy's higher grades at 9.2 grams per tonne gold. Much of our success resulted from infill drilling at Santoy 8, which has confirmed the higher grades that were present in the previous year's inferred resources.

Seabees measured and indicated Mineral Resources increased to 856,000 ounces of gold. The resources increased due to infill drilling of Inferred Mineral Resources at Santoy 8 and lower Santoy Gap. This work converted or added 283,000 ounces from those 2 zones, outpacing mining depletion and the exclusion of the old Seabee mine's 47,000 ounces of resources due to its closure.

Seabee Gold Operation's inferred resources now stand at 483,000 ounces, reflecting our focus on conversion for the period and importantly, our inaugural 87,000 ounces of discovery gains at Santoy Gap Hanging Wall.

At Puna, proven and probable Mineral Reserves totaled 38.7 million ounces of silver, reflecting Chinchillas' mining depletion starting in the second half of 2018 and Pirquitas' stockpile depletion throughout the year. Measured and Indicated Mineral Resources totaled 89 million ounces of silver within an open pit, underground and stockpile inventory at both sites. Inferred Resources totaled 31.1 million ounces of silver and are unchanged from 2017.

Turning now to our 2019 exploration objectives. At Marigold, we will return to a focus on resource growth with 60,000 meters planned for Valmy, East Basalt and around Red Dot as well as completing the first series of drill fences across the recently acquired 32 hectares of lands, south and adjacent to Red Dot. At the Seabee Gold Operation, 2019 exploration will similarly focus on converting and extending inferred resources at Santoy 8, Santoy Gap and Gap Hanging Wall through a combination of surface and underground diamond drilling that amounts to 68,000 meters. We are also maintaining our efforts to discover new inferred resources with 8,000 meters of surface drilling at Fisher and strong field programs in certain areas of our control tenures.

The 2019 exploration activities are already underway with 4 surface drills and 3 underground drills turning. Currently, we are drilling on Santoy 8A, Santoy Gap, Gap Hanging Wall and extensions to the Santoy Shear and at the Mac target on Fisher.

At Puna, there is still potential to identify additional high-grade mineralization at the interpreted intersection of the Cortaderas and Potosi veins at depth, which could improve the Pirquitas underground economics. We have included $1 million in our budget to drill test this and any targets generated by the drone magnetic surveys currently nearing completion. We would expect that drilling to be completed in the second half of the year.

Now over to Greg for a discussion of our financial results.

Thanks, Carl. It was great to see the operations have a solid fourth quarter to round out 2018 ahead of plan. 2018 was a transition year for us with Argentina in construction. So having Chinchillas come online in December, positions Puna Operations to return to be a contributor to our financial results, giving us a boost as we head into 2019.

With Marigold and Seabee continuing their track record of earnings and cash flow contribution, adding Puna back in sets us up well to see sequential improvement in reported results.

For the fourth quarter, we reported revenues of $104 million and income from mine operations of $17 million. We reported a net loss in the quarter, largely due to 2 items that were, ironically, both very positive for our shareholders. The first item relates to our purchase of SilverCrest shares. Upon close, the price we paid was at a premium-to-market so we recorded a $2.8 million loss to income on initial recognition.

We paid $23 million for a 9.7% position, which is now worth approximately $30 million. But that increase in value gets recorded through other comprehensive income. So what is looking so far like a great investment impacted Q4 earnings.

The second item was that, due to the strong absolute and relative price performance of our shares through the fourth quarter, noncash share-based compensation expense in the quarter was $8.3 million, well above normal quarterly levels. Our adjusted attributable net earnings were $4.4 million or $0.04 per share. We do not adjust for noncash stock-based expense in our adjusted earnings. However, we did adjust for the one-off SilverCrest expense.

For the year, we generated revenues of $421 million and income from mine operations of $77 million. Reported earnings were breakeven with earnings attributable to our shareholders of $6.4 million or $0.05 per share. Full year 2018 adjusted attributable net income was $28 million or $0.23 per share.

Turning to cash flow. We saw over a $22 million increase in noncash working capital in the quarter, which was the combination of building generally, finished goods and in-circuit inventory during the quarter at all 3 operations. The upshot to that is we are seeing a stronger mental price market to sell into as we move that inventory. As a result of that build in working capital, we saw a $3.7 million use of cash from operating activities.

Capital spending across all 3 assets was $17.2 million. Both Marigold and Seabee closed out the year below their capital guidance amounts with Puna right at guidance as the sites continued to show good discipline capital spending. As mentioned earlier, we also invested $23 million in SilverCrest shares as we partner with them on their promising project in Mexico.

Spending at the Chinchillas project totaled $19 million, and as announced with the commercial completion decision, we expect the project to be completed in Q1 with approximately $9 million of further spend as the project finishes at or below budget.

Considering these strategic investments in our assets, and third-party opportunities and the $8 million loan extended to our partner, it is great to see us close 2018 with nearly $420 million of cash, keeping our balance sheet strong as we enter our growth phase in 2019.

We released our guidance in January, which supports our expectations of growth with all 3 operations having a guidance midpoint higher in 2019 than in 2018 and at Puna significantly higher with the full year contribution from Chinchillas. For 2019, we expect consolidated production of 395,000 gold equivalent ounces at approximately $700 cash cost per payable equivalent ounce. If I compare that to our initial 2018 guidance, production is higher by 16% or 55,000 equivalent ounces and cash costs are lower by 6% or $40 per ounce. If both Marigold and Seabee could hit guidance mid points, they would each set a new respective production record.

Items of note within capital spending are the acceleration of a leach pad build at Marigold by approximately 6 months to add flexibility to the operation, and a significant tailings expansion at Seabee to accommodate the growth in reserves and resources.

Our guidance supports all 3 operations being in a free cash generating phase in 2019 with free cash flow weighted towards the second half. In that regard, a few items to highlight, particularly through Q1 and into Q2. I already mentioned the remaining Chinchillas spend of $9 million largely in Q1 but some payables may spill over into Q2. Also in Q1, we will make the payment of approximately $7 million for cash taxes payable on the Pretium dispositions. The taxes have already been booked but remained as a payable at year-end.

We're in the process of ramping up concentrate sales after this switch to Chinchillas ore, which dramatically increases tonnages of concentrates produced. Due to the logistics of concentrate marketing, which requires establishing agreements, transporting internationally and third-party smelting and refining, it will take a number of months to get up to a run rate that matches production, so you will likely see sales-like production through the early part of the year.

Finally, as with every year, Q1 and into early Q2 sees the restocking of Seabee over the ice road, leading to a high quarter of supplies, inventories and capital spend for all goods being brought to site.

To wrap up, 2018 concluded well, and we maintained a strong financial position through a year of high investment and limited contribution from Puna. We come into 2019, the start of our growth phase with a stronger outlook internally and is welcomed by all in our sector, stronger gold and silver prices with lower energy prices, which would also support higher margins if they hold, as I expect them to do.

I'll now turn the call back to Paul.

Thanks, Greg. So in summary, it was particularly pleasing, but even in a transitional year, we delivered solid operating results across the portfolio, having met or exceeded our production and costs guidance for the seventh consecutive year. We are well-positioned to execute our growth strategy to 2019 production will pass to grow for nearly 400,000 gold equivalent ounces as all 3 operators increased output, including our newest mine, Chinchillas, that is ramping up to steady-state operations. And by 2021, our production profile is expected to grow to 440,000 gold equivalent ounces, not including potential upside of Marigold or success from our brownfields' expiration programs.

We also continued to invest in our long-term future through exploration with strong results at both Marigold and Seabee. This continues our track record of creating value by increasing Mineral Reserves and Resources each year, and we expect to do the same this year.

We continue to maintain our financial discipline. We said we would only go ahead with the Pirquitas and Pitarrilla underground projects, if they offer double-digit returns at spot prices. We have no doubt both projects will move forward at some time in the future.

Looking ahead, 2019 is a year full of catalysts for our businesses. At Marigold, it is important to highlight that we have already added over 2 million ounces of gold to reserves since the end of 2014. In 2018, with a focus on Mineral Resource completion at Red Dot, we successfully added 460,000 gold ounces to Mineral Reserves. We continue to evaluate the optionality of this asset with the equipment replacement study, which we expect to provide an update on by midyear. At Seabee, we're expecting another record production year in 2019, with the addition of new mining equipment traveling to site on this year's ice road. This continues to support increased mill throughput. Our exploration program at Seabee remains focused on discovery and conversion.

So looking ahead for SSR Mining, our strategy remains consistent, focusing on delivering safe production while investing in our assets and executing on our growth strategy to create value for shareholders. We did this again in 2018, and our outlook for 2019 and beyond that remains bright.

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.

(Operator Instructions) Your first question is from Michael Gray with Macquarie.

Two questions on Seabee to start out with. On the resource increase at Santoy -- the first resource at Santoy Gap Hanging Wall, the 87,000 ounces, what was the grade and average thickness? And is it open in all directions?

We haven't given out the grade, but I'll let Carl talk to the thickness, et cetera.

Yes. It's between 2 and 4 meters. There are some, as you will see them in some of the drill results we got. There's some more detail in that. There are some intercepts that are wider, Mike. There is potential to expand it up and down plunge. And we did have indications from the drilling last year, that we're really supporting that. So we feel pretty bullish about it.

Okay. And then on Seabee. What was the driver of the reserve grade reduction? Was it more bulk mining in the slope designs?

Well, it's not -- I would say the grade hasn't fallen by a large amount. And it's really just reflecting the design of the reserve and slope outlines, what's in front of us.

Certainly, yes. When you go from Inferred into M&A, yes, you're getting more definition. So obviously, the map sets us and you'll see a slight reduction in the growth.

Okay. Fair enough. And then the mac target at Fisher. Is this a conceptual target, Carl, or is it really underpinned by mineralization and something you're really expecting good results from?

Yes. There's some -- there's gold mineralization at surface that's exposed in outcrop and we've been following up on that with drilling. And all I could say right now is you'll hear a little bit more about it in the next quarter.

Yes. The thing to remember up there, when you go to the site visit, we talked about the original outcrop of Santoy was not spectacular at all. There was a couple of some feet across with just a few grams in it. So it's always -- if you see some channel -- get some channel sampling, gold on surface, you go chasing the depth and keep your fingers crossed.

Yes. Fair enough. And last question just on -- Paul, you're well-positioned for M&A. You've been messaging disciplined approach to outside opportunities. Are you starting to feel increased pressure to do a deal? And to what extent are you focused on these potential noncore senior mining assets coming out to the market this year? And finally, are you still primarily focused on North America?

Yes. I mean, I read The Globe and Mail this morning, making sure they didn't name us. But the -- yes, obviously, we continue to look for opportunities. It's good to see that the activity has increased. Yes, there is consolidation. There should be consolidation. There needs to be consolidation. We will look at opportunities as they come up. With respect to the majors, I think every bank has been through with a list of 500 odd mines they expect to be sold. We've looked through and, obviously, there were a couple that we're interested in, and we'll be disciplined. We'll look at whatever process. And if we think we can acquire a mine and still add value for shareholders, we will. Otherwise, we'll sit on the sidelines.

And primarily North America or are you willing to search?

Yes. We definitely are focused on the Americas. We love the fact that 2 key assets in North America are in very, very safe jurisdictions, and yeah, that does differentiate us. So certainly, focus on the Americas and have the bias -- in North America, we currently have but ultimately, you do have to go where the mineralization is.

Our next question is from Mike Parkin with the National Bank Financial.

With regard to Seabee and the expansion. How, like you've shown in a number of presentations, that the throughput of the mill seems to continually exceed your expectations, or in a comment, I think it was in your January corp presentation that kind of a feeling area, where ultimately, the mill could kind of sustain throughput. Could you just give us a bit of color on what your current thinking is? And is that expansion pretty much completed now? Or is there still just a tiny bit of work left to do on that.

I'll make a comment and pass it over to Kevin. If you look back in any of our recent presentations, we showed that daily plot graph, which shows really a significant increase and throughput through the plant. I think around 860 tonnes per day on average the year before we bought it and a fairly steady increase. And our peak day, I think is around 1,440. But that's a one-off. That's not what you can do day in and day out. The important thing is, you call it an expansion, but it's really just operating the plant harder. There's been minimal capital in that. It's just focused on continuous improvement. In terms of what is that steady state or the other point is, when you look at that graph, there's a lot of down days. That's because the bottleneck has moved back from the plant back to the mine. And as Kevin mentioned, we've got the new equipment coming in. So hopefully, you'll see fewer down days as we get that equipment into the system. In terms of what's sustainable going forward. Kevin, your thoughts?

Yes. We, I mean, in the PA, the rate in the plant was 1,250, 1,350 -- 1,050. No, not next year, for this year. I'm talking about the ultimate. But as Paul mentioned, the limiting capacity here is in the mine. We are doing work to understand what the limiting capacity might be overall in the plant. But the focus is on the mine. We have 2 scoops and 2 trucks on the road now to come in. We're increasing our development, capital development rates in the mine to access more stocks faster. And that will be what allows us to ramp up the plant. It'll be the limiting capacity of the mine.

And when do you expect that new mining equipment to be commissioned and operational?

During Q2. It's -- some of it actually, today may already be across the ice road.

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

Paul, just on the theme of M&A. Not -- I want to about the noncore asset sales but obviously, you've been extremely prudent in how you approach M&A, not wanting to seek value to the acquisition target but actually the whole value for your investors and your shareholders to benefit from. Based on what you've been looking at, sort of out of the noncore assets, even if the process has target there. Are you seeing anything of high quality beyond what -- obviously, you like this investment. But if or are you seeing anything of really high quality nature? And two, if you are, are you seeing an environment where those management teams are willing to engage in constructive dialogue, realizing that you could probably bring less dilution to that company and their shareholders give you a significant cash balance. And I would assume that, based on your track record, and the fact that you run a company as miners and not financiers that you could actually develop these projects quicker. Are you seeing anyone actually wanting to engage? Or are they still looking at too high a bid versus your ask?

Yes. I think, just as a generalization, everyone's sort of talking more than they have in the past. You always have that problem that is term social issues whenever people start talking about deals. I think it was great -- the Barrick Randgold deal was great. It got people talking about 0 premium mergers. That's great. And I haven't read the article yet today, but my interpretation of one of the broker notes, it was 0 premium hostile that people are talking about, which is really exciting. So it's that thing. You've got to have those conversations, and we'll see where that leads to. But yes, I'm sure they will be continued and ongoing consolidation, particularly in that intermediate space.

Okay. Have you -- are you interested in a merger of equals at this point in time?

We'll consider anything that we think is in the best interest of our shareholders. So if you look at any of those sorts of deals, you've got to say our shareholders are better off on certain metrics and then you evaluate it that way. But you have to -- you should be open to that for the benefit of your shareholders.

Okay. And then just lastly, there's -- those opportunities out there right now. And you wouldn't want to put in your cash -- hold your cash back right now. But is there a point in time where there's too much cash on the balance sheet and you look at providing a bit of return of capital to investors? Obviously, it's probably not 2019, but just wondering if you've started to think about that from a management level where there's just too much cash on the balance sheet.

We definitely talk about capital allocation. It's a regular discussion, both at management and board level. And what we said, we have a number of potential catalyst internally coming up. Obviously, Marigold expansion study. We'll see what comes out of that. And any point in time, if we don't see good ways to spend the money, then you look at what is most efficient way to give it back to shareholders. But I think one thing that is interesting, you've seen an evolution in the market over recent years where the investment banks aren't funding the industry. The industry -- it's either coming from companies that have cash or the straining companies or some private equity. We are in a very good position. We can fund ourselves and, it can open doors to new opportunities. We can only grow the company, create value by adding units, when you can only add the units by drilling or buying. So we look at both. We're investing heavily in exploration. We continue to look externally. And that puts us in a great position. But absolutely, we won't do anything stupid and we won't do it for the sake of doing it. So if at a period of time, we think we haven't got a better use. We will return it to shareholders.

Okay, great. I'm glad to see the market paying attention to your stock, after the last couple of years. It's -- share price is doing great and I think it validates how your management team runs the company. So congrats on that.

That's nice to see and validates that, why you put on such a long time ago. Well done.

Our next question comes from Chris Thompson with PI Financial.

Yes, the stock's done really well. I think it does validated a lot of things, especially the way you're running the company. Just a couple of quick questions here. Just looking at Marigold, at the grades, the stacked grades at the moment, as I think you indicated running below reserve grade. Can you give us a sense of how we should be modeling this?

I think the best one -- have a look at on the technical report, which went out last year. Yes, that's got everything on a year-over-year basis, both grade and strip ratio, year in and year out. And you get a feel for what our broad thinking is in terms of leach times. So yes, look at that and then that will give you a good handle.

All right. Okay. Just moving onto Seabee quickly. Obviously, gold locked in circuit in the fourth quarter. Are we going to see a benefit of that coming out in the first quarter?

Absolutely. It was just that, we didn't pour in the last couple of weeks so it slushed down in January.

And then just finally just moving to Argentina. A little bit of a color, maybe a comment on any cost pressures, the fiscal regime down there. What's happening?

In terms of the fiscal regime, no significant changes. We feel very comfortable with the way that government continues to operate the economy and navigate through some challenges that they have. But from an operation, as an exporter, we're in good shape to kind of manage through that stuff. Certainly, in the fourth quarter, we saw the peso stabilized and inflation was carrying forward. So quarter-to-quarter, we're going to see potential -- some potential disjoints between inflation and the FX rate. So that resulted in some marginal cost pressures in the fourth quarter because of that. But our view still is, over a reasonable period of time, those 2 things will offset each other and we'll stay in a competitive position. If you look at any chart on the peso, it holds for a while then it goes through a period of fairly rapid devaluation and that holds for a while. We're in that holding phase right now. But I still have confidence through the year we'll see those 2 factors offset each other.

Our next question is from Michael Sroba with Macquarie Capital Markets.

A couple of questions on Marigold. Given that you have a new leach pad, what percentage of the production in 1Q is being stacked close to the plastic there?

Michael, it's Kevin here. We have stacked to-date about $3 million tonnes. So I -- it's difficult to say what percentage of production will come from that, but a significant proportion in Q1 because there's production coming from all of the pads.

Okay, that's good to know. And just on the G&A cost. They're about 20% lower than the 2018 technical report at the moment. Do you see that as being sustainable in the near term?

Yes. We certainly -- there's nothing unusual going on in the G&A cost. A lot of it really comes down to the unit, Mike. So obviously, we've seen an increase in total material mind, which helps those unit cost numbers spread a bit. So that's really what I would drive you towards. In all material terms, it's a fairly fixed dollar spend operation, and we'll see unit costs vary according to the ore tonnes stacked or the total mine tonnes moved depending on which unit metric we're looking at. So you will see those quarter-to-quarter variations. But if you look in -- if you look on sort of where G&A costs for the year, we don't see anything materially unusual in that, going forward.

Our next question is from Howard Flinker with Flinker and Company.

Using approximate numbers, what is its cost exploratorily to add reserves and resources this year per ounce?

It's -- do you want -- Howard, do you want that sort of thing as -- that kind of result in globally or...

Yes. Yes, those numbers.

It's between -- yes, the experience at Marigold has been in the $20 to $25 an ounce range. And at Seabee, it's mid-40s.

Our next question is from John Tumazos with John Tumazos Independent Research.

Looking at the 2.6 million ounces of nonreserve resources at Marigold and the over 500 million ounces at Pitarrilla. What gold price would or infill drilling bring the Marigold ounces into reserves or the Pitarrilla silver ounces in the reserves, if the engineering is -- knowledge is detailed enough. And separately, am I dumb to look at the resources and ignore Seabee where the vein type drilling makes it hard to find the resources. Maybe that one has more potential than the other 2 resources?

Yes. I'll make a couple of comments, and then see if Carl or Kevin want to add anything. At Marigold, the focus -- in an open pit, it tends to be easier to convert, so you normally have less inferred. But if the M&A not currently in reserves at Marigold. We focused last year on Red Dot that had the -- because that had the largest single volume of those ounces, over a million. We did the drilling last year. Pleasingly, we're able to convert Phase 1. The remaining 700,000 odd ounces, that's the focus of the equipment replacement study. And we're doing the geotech drilling for that at the moment. We said we'd have to come out with a view on that by midyear, so end of Q2, hopefully. And that will decide, whether we're able to convert the remainder of debt. In terms of anything outside of Red Dot at Marigold, Carl, what else do you expect to sort of focus on?

We're going to be looking through 2019 fairly hard, at the Valmy Property. That's the southeastern quadrant of our land position there. There's already significant resource and reserve endowment there, and we're looking to build on that. Onto your other point about with the narrow vein gold-mining setting like what we have at Seabee. I would not infer -- I would not ignore the inferred resources that are on our tables there. The -- our conversion experience has been quite reasonable. So yes, there's a lot of real ounces in those inferred classification resources.

And just going on to Pitarrilla, that's a silver project. What we've said there -- we did a semi-detailed study last year on that to see. That hurdle was, couldn't we come out with a project that was economically spot price and we said we wanted a double-digit return. We're not going to build a mine just for the sake of building it. It was economical. It had positive NPV, but we didn't get a double-digit IRR, so we put it on the back burner for now. But we know that there's some potential to increase the grade in certain areas. It was originally drilled as an open pit operation, and that's the basis of the historic drilling. So we're going to get back and think about whether some focus drilling could increase the proportion of high-grade, which obviously, would have a great or has a potential to improve the economics of the project. But -- yes, we continued to work on the assumption, our reserve price for silver is $18 per ounce. So they're the numbers we look at. We're not going to build something in the hope that it goes over $20 an ounce. Hopefully, that covers...

So your spot study was done at $18 a year or two ago.

No. The spot study this year -- no it was done lower than that. I just said for the reserves we calculate, that we used the spot price, I think it was $16-something at the time.

So to go forward on Pitarrilla, given it takes a couple of years to build something, you might need to hedge above $20 or $22, the first couple of years to get some of the money back for sure?

You could. And if you can sell me some hedges at $22, I'll buy them.

I'm looking out a long way, right?

Right, okay. Okay, I think, that's the end of questions. So thanks very much, everyone. Have a good day.

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