Teck Resources Ltd (TECK) 2004 Q4 法說會逐字稿

Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Aur Resources Q4 and year end results conference call. [OPERATOR INSTRUCTIONS] I would like to remind everyone, this conference call is being recorded on Friday, February 11, 2005 at 9:00 am ET. I will now turn the conference over to Mr. Jim Gill, President and CEO.

Good morning everybody and welcome to Aur’s fourth quarter and year end conference call. We’re going to follow our usual format where I’ll review the technical results, following which Ed Guimaraes, Aur’s Vice President and Controller will present our financial results. Following this I’ll give a brief outlook for 2005, then we’ll take questions, first from those attending by telephone and then from those present here in the room.

The fourth quarter of 2004 was another excellent one for Aur, with copper production of 63.4 million pounds, record earnings of $33.5 million, or CAD $1.34 per share and cashflow from operating activities is $57.1 million. Aur also declared a dividend of $0.10 a share in the fourth quarter which was paid in January of this year. I would like to remind everyone that AUR is a US dollar reporter, so all the figures we give are US dollars unless we state otherwise.

Turning to the production highlights in the fourth quarter—in the fourth quarter Aur’s share of metal production was 63.4 million pounds of copper, 3.3 million pounds of zinc, together with 46,000 oz of silver and 2100 oz of gold. Cash operating cost per pound of copper sold, net of byproduct credits was $0.60, as expected, given the higher cost of labor, energy and reagents, together with the negative impact of the strong Chilean peso.

Cashflow from mining activities was $51.5 million, capital expenditures at the mines was $0.9 million, and from a safety standpoint we had three minor lost time accidents at the mines, and the mines all operated in full environmental compliance during the quarter. For the full year, Aur’s share of metal production was 236 million pounds of copper, 13.6 million pounds of zinc, 188,000 oz of silver and 7,000 oz of gold. Cash operating cost per pound of copper sold, net of byproduct credits was $0.57. Cashflow from mining activities as a record $173.2 million before capital expenditures at the mines of $4.5 million. In December, Aur made a CAD $92 million capital commitment to develop a Duck Pond deposit in Newfoundland, for production beginning in late 2006.

Turning to the mines themselves, the Louvicourt Mine had another exceptional quarter from both an operational and financial standpoint. Given the challenges that any mine in its last year of production must face. In the fourth quarter, we milled 316,640 tonnes of ore at an average grade of 2.9% copper, 1.8% zinc, 24 grams silver and 0.9 grams per tonne gold. This resulted in production of 19.6 million pounds of copper, 4.7 million pounds above the budget due to both higher grade and higher mill throughput. We produced 10.8 million pounds of zinc, half a million pounds above budget, also due to higher mill throughput.

Silver production was 154,000 oz and gold was 7,000 oz. Copper recoveries were 96% with 28% copper concentrate. We produced 31,620 tonnes of copper concentrate, 7,800 tonnes higher than our budget. Zinc recoveries were 84% to a 56% zinc concentrate, and production was 8,800 tonnes of concentrate, about 500 tonnes higher than budget. Silver recoveries were 63%, gold recoveries were 74%.

Our operating cost per tonne of ore milled was CAD $3.89 below the budget at $35.43. Our cash operating cost per pound of copper net of byproducts credits was $0.36 per pound, or $0.16 per pound below the budget. This was due to lower TCs and RCs, lower operating costs, and higher zinc byproduct credits. As expected, capital expenditures in the quarter were zero, and Aur’s share of cashflow from Louvicourt was $4.5 million.

For the full year we milled 1.2 million tonnes of ore, about 12% higher than the original budget at Louvicourt at a grade of 2.8% copper, 2% zinc, 26 grams per tonne silver, and .86 grams per tonne of gold. Production was 73 million pounds of copper, or 9.3 million pounds higher than budget due to the higher mill throughput and an 8% higher copper grade. We produced 54 million pounds of zinc, 4.5 million pounds higher than budget, again, due to the higher mill throughput. This was partly offset, but marginally, by marginally lower zinc grades.

Silver production was 628,000 oz and gold production was 23,421 oz. This is 100% basis when we talk about the mine itself. Copper recoveries, again, were 96% to a 28.5% concentrate. We produced 116,000 tonnes of copper concentrates, about 14,000 tonnes higher than the budget. Zinc recoveries were 84% to 56% zinc con, we produced 37,155 tonnes of zinc concentrate, just a little bit higher than budget. Gold recoveries were 69% and silver recoveries were 60%. Our operating cost per tonne of ore were approximately CAD $5 per tonne below budget in Canadian dollar terms, at CAD $37.33. Our cash operating cost per pound of copper net of byproduct credits was $0.40 per pound, $0.15 below budget basically for the same reasons that they were below for the quarter. Capital expenditures were zero, and Aur’s share of cashflow from Louvicourt for the full year 2004 was $16.1 million.

Overall I think it’s fair to say that operating performance was exceptional in 2004 at Louvicourt, and the operating team there deserves a great deal of credit for maintaining a very high standard of performance, similar to that they’ve achieved over the last 10 years, in this which is the last 12 months of full production for the Louvicourt Mine.

Turning to Chile, the Andacollo Mine, the fourth quarter of 2004 was a good one at Andacollo from both an operating and financial standpoint. We moved 4.7 million tonnes of rock at a strip ratio of 3.7:1. One million tonnes of this rock moved was ore, and an average soluble copper grade of 0.69%. This resulted in production of 12.7 million pounds of 100% LME grade A cathode copper, or approximately 900,000 pounds greater than our budget for the quarter. Our cost per pound of copper sold at Andacollo was $0.67 in the fourth quarter, our capital expenditures were half a million dollars, mainly on truck overhauls. And our cashflow from operations was $9.1 million for the quarter. We had no lost time accidents at Andacollo in the fourth quarter.

For the full year we moved 16.1 million tonnes of material, of which 3.3 million tonnes was ore, with an average grade of 0.68% soluble copper as budgeted. This gave us a strip ratio of 3.7:1. Our production was 46.1 million pounds of 100% LME grade A cathode copper at a cash cost per pound of copper sold of $0.57 per pound. Our capital expenditures for the year were $3 million principally on completing the leach pad expansion, which was begun in 2003, and completed in January of 2004, and our truck overhauls of $1.2 million.

Cashflow from operations was $33.5 million, the best year we’ve ever had at the Andacollo Mine. We are now operating under a new 4-year collective agreement with our unionized workforce which is nice to have, and we expect 2005 to be a very profitable year for the Andacollo Mine.

Turning to the Quebrada Blanca Mine, we had a strong fourth quarter in 2004. During the quarter we mined 9.3 million tonnes of rock, at a strip ratio of 1.4:1. This included 1.8 million tonnes of heap leach ore at an average grade of 1.2% soluble copper and 2.1 million tonnes of dump leach ore at an average grade of 0.3% soluble copper. Production was 44.8 million pounds of copper, pretty close to the budget. Capital quality was 100% LME grade A, and our cost per pound of copper sold was $0.61. Copper sales totaled 45.1 million pounds in the fourth quarter.

Cashflow from operations was $38 million in the quarter, and capital expenditures were quite low at $0.4 million on a variety of small projects. For the full year 2004, we mined 24.9 million tonnes of material at strip ratio of 1.3:1. This included 7.1 million tonnes of ore from the heap leach ore at l.1% soluble copper, and 7.8 million tonnes of dump leach ore at an average grade of .32% soluble copper. Production was 168 million pounds of 100% LME grade A cathode copper. Copper sales were essentially the same at 168.3 million pounds. Our cost per pound of copper sold was $0.60, and our mining costs per tonne of ore mined was $0.67.

Cashflow from operations was $123.6 million for the year, and capital expenditures were $1.5 million, of which about half a million was in the plant, a half a million was on our information technology upgrades and about $200,000 in each in the mine and in the maintenance areas.

In 2004 in July of 2004, we completed a new 4-year collective agreement with the unionized workforce and in December of this year, our cathode copper received LME registration, so all of the copper going forward is LME registered. We expect 2005 to be a very good year at Quebrada Blanca.

On the project development side in December we committed CAD $92 million of capital to develop the Duck Pond copper zinc deposit in Newfoundland for production at the rate of 1800 tonnes a day. The mine is expected to be in production in late 2006, and to produce about 41 million pounds of copper and 76 million pounds of zinc annually at a cash cost in the order of $0.40 per pound of copper, net of byproduct credits.

On the exploration front, I’m pleased to report that we had a good year in 2004, we have acquired five properties, four copper and one gold property which will be drilled in 2005. Three of these copper projects are in Chile, one is in Mexico, while the gold property is in Southern Patagonia area of Argentina.

I’d now like to turn the meeting over to Ed Guimaraes who is going to take you though the financial results for the fourth quarter and for the full year 2004. Ed?

Thank you Jim. Ore resources had a record quarter from a financial performance perspective with strong revenues, earnings and cashflows. As a significant copper producer, ore continues to reap the rewards of higher copper prices, which averaged $1.40 per pound in the fourth quarter of this year. Before getting into the numbers, I would like to remind everyone that all figures are in US dollars unless otherwise stated.

Please turn to the consolidate statements of operations. Focusing on the fourth quarter, net earnings were a record $33.5 million, equal to $0.36 or CAD $0.47 per share in the fourth quarter of 2004. Compared to net earnings of $6.8 million or $0.07 per share for the same quarter last year. Operating revenues were a record $97.9 million, approximately 59% higher than the $61.4 million for the same period in 2003, largely due to the fact that ore realized an average of $1.49 per pound of cathode copper sold in the quarter, compared to $0.94 cents for the same quarter last year. Aur’s forward sale of 4.2 million pounds of copper at $0.83 per pound was offset by the exercise of it’s matching call options, and therefore there was no net hedging revenue.

Looking at expenses, mine cash operating expenses were $41.1 million for the quarter, which was $5 million higher than last year due to significantly higher labor, energy, acid and transportation costs related to the strong global economic activity, as well as the negative impact of the strong Chilean peso relative to the United States dollar. Aur’s cash operating cost per pound of copper sold was $0.60 for the quarter, net of $0.04 per pound of byproduct credits, of which $0.03 per pound was from zinc revenues from the Louvicourt Mine.

Turning to the other expenses for the quarter, non-mining expenses before taxes and non-controlling interests, with the exception of depreciation and amortization, were essentially on budget and essentially the same as in the corresponding period in 2003, so I won’t go over them in detail.

Depreciation and amortization expenses were lower than budgeted at $2.7 million in the fourth quarter compared to $9.1 million in 2003. In 2003, depreciation and amortization was charged entirely to earnings which was consistent with industry practice. Under the requirements of the new accounting standards, the depreciation and amortization attributable to the carrying value of in-process and cathode copper inventories must now be included in those inventories. The new method was applied prospectively in 2004 without restatement to the 2003 financial statements. This is the principal reason why depreciation and amortization was $6.4 million in the fourth quarter of 2003.

The provision for taxes was $9 million in the fourth quarter of 2004 compared to $1.8 million in 2003 as a result of higher earnings in 2004. The cash component of these taxes was $5.5 million of which $4.9 million related to Quebrada Blanca's income and $0.6 million related to Quebec mining duties on Aur's share of Louvicourt's income. Non-cash future taxes totaled $3.5 million in the quarter.

Non-controlling interest expense which represents Aur's partners' interest in the Andacollo and Quebrada Blanca mines was $5.6 million in the fourth quarter compared to $1.7 million in 2003.

Turning to the full year 2004, net earnings were a record $96.9 million equal to $1.03 or CAD$1.34 per share in 2004 compared to net earnings of $10.9 million or $0.11 per share in 2003. Operating revenues were a record $336.9 million approximately 56% higher than the $215.6 million in 2003 largely due to the fact that Aur realized an average of $1.38 per pound of cathode copper sold in 2004 compared to $0.84 cents per pound last year. Aur's forward sale of 50 million pounds of copper at $0.83 per pound was offset by the exercise of its matching call options and therefore there was no net hedging revenue in 2004. Aur nor longer has any forward copper sales and call options.

Looking at expenses, mine cash operating expenses were $146.7 million for the year which was $15 million higher than last year due to $21.3 million of additional costs partially offset by $6.3 million of lower mining expenses resulting from the $11.9 million fewer pounds of copper sold. The higher costs were for the reasons previously mentioned as well as from the one-time payment of $1.7 million in bonuses to unionized employees upon signing the new 4-year collective agreements at Quebrada Blanca and Andacollo.

Aur's cash operating costs per pound of copper sold net of $0.05 per pound of byproduct credits of which $0.03 per pound is from zinc revenues from the Louvicourt Mine was $0.57 for the year compared to $0.50 per pound in 2003.

Turning to the Other expenses for the year, non-mining expenses before taxes and non-controlling interest with the exception of depreciation and amortization were essentially on budget and essentially the same as in the corresponding period in 2003. So again, I won't go over them in detail.

Depreciation and amortization expenses were lower than budgeted at $30.5 million in 2004 compared to $38.9 million in 2003. This was due to the requirements of the new accounting standards whereby the $6.6 million of depreciation and amortization attributable to the carrying value of in-process and cathode copper inventories as at December 31st, 2004, was included in those inventories.

Also contributing to the decline in depreciation and amortization in 2004 was the increase in reserves at the Quebrada Blanca Mine. The provision for taxes was $23.3 million in 2004 compared to $5.3 million in 2003 as a result of higher earnings. The cash component of these taxes was $8.1 million of which $5.8 million related to Quebrada Blanca's income and $2.2 million related to Quebec mining duties on Aur's share of Louvicourt's income.

Non-cash future taxes were $15.2 million in 2004. Non-controlling interest expense was $17.7 million in 2004 compared to $3.5 million in 2003.

Turning to the consolidated statements of retained earnings, Aur's retained earnings at December 31st, 2004, were $128.6 million. This is $88.9 million higher than at December 31st, 2003, and was the result of net earnings of $96.9 million for the year less the $8 million dividend of CAD$0.10 per share payable to shareholders on January 1st, 2005.

Turning to the consolidated balance sheets, total assets on the balance sheet were $574.7 million at December 31st, 2004, a $121.1 million increase from December 31st, 2003. Aur's current assets were $273.5 million at December 31st, 2004 comprised mainly of $206.5 million of cash, a $131.2 million increase from December 31st, 2003. The cash increase was principally the result of the high operating cash flow from the mines.

Property, plant and equipment was reduced by $17.7 million to $273.9 million in 2004 as depreciation and amortization including the $6.6 million capitalized and the carrying value of in-process and cathode copper inventories exceeded the amount of expenditures on property, plant and equipment for the year. The long-term copper inventory of 18.7 million is for recoverable copper contained in the base of the leach paths at Quebrada Blanca which will not be processed until near the end of the mine life.

Total liabilities at December 31st, 2004, were $263.8 million, a $31.5 million increase from December 31st, 2003. Current liabilities were $51.9 million at year end, an increase of $18.1 million from December 31st, 2003. The difference from last year is principally comprised of the $7.8 million of dividends; the $10 million copper price participation due to Teck Cominco under the terms of the purchase agreement for the Quebrada Blanca Mine as the average copper price exceeded $1.22 per pound in 2004; and the $1.9 million mine closure and site restoration costs to be incurred in 2005 related to the closure of the Louvicourt Mine in mid-year.

Both the dividend and cost of price participation amounts were paid in January as planned. Other liabilities, as shown on the balance sheet, totaled $211.9 million or essentially the same as at December 31st, 2003, with the exception of future income and resource taxes of $19.4 million which has increased $13 million due to strong earnings in 2004.

Shareholders equity increased by $89.6 million to $310.9 million at December 31st, 2004, on the strength of Aur's high earnings during the year. Aur ended 2004 with a record $206.5 million in cash and working capital of $221.6 million.

Turning to the consolidated statements of cash flows, focusing on the fourth quarter, cash flow from operating activities was $57.1 million equal to $0.60 or CAD$0.79 per share in the fourth quarter of 2004 compared to $21.7 million or $0.23 per share in the fourth quarter of 2003. Financing activities totaled $9.2 million and included $6.6 million paid to non-controlling interests in the fourth quarter. There were no cash payments made to non-controlling interests in 2003 as 100% of the available cash flow from Andacolla and Quebrada Blanca was used to repay senior debt to Aur.

Investing activities in the fourth quarter totaled $1.9 million of which $1.7 million was for investments in property, plant and equipment including $0.7 million at Duck Pond. In the fourth quarter of 2003, investing activities totaled $3.4 million. Aur's cash balances increased by $46.1 million in the fourth quarter of 2004 ending the year at $206.5 million.

Turning to the full year Aur's cash position increased by $131.2 million or 174% to $206.5 million and working capital increased by $123.3 million or 126% to $221.6 million in 2004.

Cash flow from operating activities was a record $163.4 million equal to $1.73 or CAD$2.25 per share in 2004, compared to $60.2 million or $0.65 per share in 2003. Financing activities totaled $23.7 million in 2004 and included $5.8 million of capital lease repayments and $16.9 million paid to non-controlling interests.

Investing activities totaled $8.4 million in 2004 of which $4.6 million was on property, plant and equipment; $1.5 million was invested at Duck Pond; and $2.5 million was paid to Enami as property purchase payments comprised of $0.2 million for Andacollo and a final $2.3 million payment for Quebrada Blanca.

Aur completed the best year in its history in 2004 with record earnings, record cash flow, no net debt, and $206.5 million in the bank. That completes my review of Aur's financial performance in both the fourth quarter and for the full year 2004 and I will turn the meeting back to Jim who will present a brief overview of Aur's expectations for 2005. Jim?

Thanks, a lot Ed. As you can see Aur's in the best financial condition it's ever been in and we expect another great year in 2005, so we're clearly in a position where we can grow aggressively if we can find the right things to do. In 2005, just to give you a bit of an outlook, an update on the outlook I guess that we put out in mid-December of last year, we expect Aur's copper production to be about 232 million pounds of copper this year of which 9 million pounds will come from Louvicourt before it closes in mid-year; 47 million pounds from Andacollo and 176 million pounds from the Quebrada Blanca Mine. Our mine site cash operating costs including all transportation, marketing and administration are expected to be $0.59 per pound of copper sold net of byproduct credits from Louvicourt of about $0.02 a pound. These costs reflect the higher energy, acid and transportation costs as well as the strong Chilean peso which are a consequence of today's strong global growth. As we've said it before, if I had to choose between $0.50 costs and $0.90 copper price; or $0.60 costs and $1.40 copper price the choice is pretty crystal clear.

In developing our 2005 outlook we've used what we believe is a conservative $1.20 a pound copper price and an LME premium for our capital of $0.045 per pound. On this basis, revenue is expected to be approximately $294 million which after mining costs of $140 million results in mine operating profits of about $154 million.

Administration costs of about $6 million; senior note interest of $8.4 million and business development costs of $10 million will leave operating profit of about $130 million. Net earnings are forecast at $57 million or CAD$0.81 per share after providing for $28 million of depreciation and amortization; $20 million for income taxes; $23 million of non-controlling interests; and $2 million of mine closure costs.

At current copper prices, however, net earnings will be essentially the same as we had in 2004. Cash flow from operating activities at the $1.20 copper price is expected to be about $125 million. Financing--financing activity will total $19 million of which $11 million is for dividends to shareholders; $4 million for mobile equipment leases; and $4 million for payments to our partners at Quebrada Blanca and Andacollo for their portion of the balance, with the senior and subordinated debt owed to shareholders and we do expect that we'll be in the position to repay all of those debts by the end of June 2005.

Investing activities in 2005 are expected to total $52 million. Of this amount $38 million will be spent on the Duck Pond development; $4 million at the mines and $10 million for the 2004 copper price participation to Tech Cominco which has already been made, of course, in January of this year. On this $1.20 copper price basis, Aur's cash balances will increase by $50.4 million to $255 million at the year end; however, at current copper prices Aur's cash balance will rise to about $300 million or CAD$4.00 per share by the end of 2005.

Turning to growth for a moment, as we have said Aur is very committed to increasing our metal production but not at the expense of profitability. We have increased our budget for business development to $10 million for each of the next 5 years in an effort to discover and acquire new sources of metal production. In 2005 approximately $5 million will be spent on exploration projects principally in Central and South America with five drilling programs on existing projects as well as the search for new exploration targets.

On the acquisition front, the search for good quality developments and operating assets will continue in the Americas, and will be expanded to include Russia, CIS countries, Eastern Europe and Africa from a new office to be established in London, England. We never know, of course, when a good asset will become available at a reasonable price, but we'll be ready to act when it does.

Closer to home, of course, Aur has two in-house development projects we're currently working on. Development of the 100% owned Duck Pond copper/zinc deposit is currently in progress, and the target date for production start up is late 2006. This mine will produce about 41 million pounds of copper and 76 million pounds of zinc for Aur each year or about 20% more copper and 6 times the amount of zinc that Aur's 30% share at Louvicourt was producing. The CAD$92 million capital cost will be funded from Aur's cash balances.

Aur's second and largest development stage project is the Andacollo primary copper deposit in Chile. This deposit has the potential to produce about 175 million pounds of copper and 55,000 oz of gold each year for a mine length of about 16 years which would significantly increase Aur's copper production. This project is 63% owned by Aur as part of the existing Andacollo Mine property. Subject to completion of a bankable feasibility study hopefully in 2005, this deposit could contribute to Aur's production profile by early 2009.

The combination of Aur's strong balance sheet for our solid mining operations; our development projects; and our commitment to grow our business through business development makes the future look pretty exciting for us in 2005 and we expect it to be a very good year. And that ends the presentation of our 2004 results and a bit of an outlook for '05, and what I'd like to do now is open the meeting for questions, and if the operator could begin with those from the telephone, and once that's completed we'll take questions from people here in the room. Operator, are you there?

Thank you, one moment please. [OPERATOR INSTRUCTIONS] Your first question comes from David Charles of GMP. Please go ahead.

Yes, good morning Jim, just on the change in your accounting policy for depreciation, if I caught what you said I think you sort of guided towards a number of $28 million in 2005. I'm just wondering is that sort of a typical run rate going forward, or how would that look let's say in 2006?

Well, I guess the answer to your question is it will be somewhere in the $28 million, $30 million range provided that there aren't any changes in the reserves, significant changes in the reserves.

Okay, so basically this now from your prior rates, as you said I think earlier, you were guiding towards $37 million, $38 million we should look now going forward for a number somewhere between $28 million and $30 million?

It could be higher than that. What's happened really here, David, is we've taken the $6.6 million that we have to allocate to the work-in-process inventory and that brought it down from $37 million to $30 million, and that $6 million it's almost like it's hung up there as long as we continue to produce at a regular rate, correct Ed?

That's correct.

And so the number will probably go up from $28 million next year, and it will only come down again as we increase reserves.

Correct.

And maybe just one final question, you gave a very good indication of where you expect things to go. I noticed your premium is one of the things that you were quite conservative on. You're forecasting, I think, a $0.045 or a $0.05 premium this year. If I'm not mistaken you were probably closer to $0.08 in '04, do you think you can repeat the $0.08 in '05?

Yes.

Okay, so--.

We're highly confident.

Okay, and can you maybe--is that just because of the way that you're treatment charges or is that mainly just due to the fact that everything is now on LME and you're being paid, what was it? I think you were saying T minus 1 or something like that?

No, first of all the concentrate stuff, of course, has no premium attached to it at all so it only relates to our cathode copper and we have for many years now gone out and sold three-quarters of our expected production of capital to bidders in an open auction each year in December which fixes the LME premium that we will attract for that copper production for the subsequent calendar year.

The premiums that were received from our transactions, and we have sold 75% of our planned production at both CDA and Quebrada Blanca for 2005 and while we don't give out the exact premiums we've achieved, I think your estimate of between $0.07 and $0.08 a pound is a solid estimate.

Thanks very much, Jim.

Thank you very much.

Your next question comes from Gord Glenn of McFarlane Gordon. Please go ahead.

Good morning, Jim. Good morning, everyone. Jim, there was an article on Bloomberg from a couple of weeks ago suggesting that Enami, your partner down at QB and Andacollo I suppose would be interested in selling their 10% stake of QB. And they put a number in there of USD$30 million. I just wondered if you comment on that. Is there an open bid process or did you just go to them directly? Just give us some color on that please?

It's been the intention of Enami to try and sell their interest in Quebrada Blanca for some time. They have now gone to a formal public bidding process for their shares in the company Menara Quebrada Blanca which effectively represent a 10% net profits interest. That process was initiated I believe in the last week and they are anticipating, at least have said that they anticipate getting in excess of $30 million. I think I read yesterday that they had said that the minimum price they would accept is $30 million. So the process is underway, and we shall see what comes of it.

And just refresh my memory on that actual share structure of Menara Quebrada Blanca, does Enami only own 10% of it and then the other 13.5% interest is other minority shareholders?

Yes, it's basically one. It's a company which we called Pudahuel who has been there from the beginning. So that we own 76.5% of it; they own 13.5% and Enami owns 10%. The reason why some people get a little bit confused about it or have in the past is because of the structure of it. Until all the seniors and subordinated debts that the company had which were owed to Aur and to Pudahuel, until those were all paid, of course, Enami was not entitled to receive any money. As we expected, all of those debts will be fully repaid by the middle of this year and thereafter instead of us getting a higher percentage than 76.5% of the available cash flow, we will get our 76.5%.

Okay, great and on Duck Pond you've got a CAD$92 million CapEx number and that's for all--like a brand new facility at Duck Pond, is that correct?

Yes, it's just a swamp right now. We have to build the mine.

What are the plans here? Louvicourt's winding obviously; there's some potential for transfer of people obviously, but certainly equipment and some infrastructure. Can you give us an idea of whether that's realistic and what kind of savings that might have on that CAD$92 million CapEx number?

I think that it's clear that there are definitely some synergies in people and equipment between Louvicourt and Duck Pond, and we expect to take advantage of that. Guy Peloit [ph], of course if the mine manager at the new Duck Pond; was the mine superintendent at Louvicourt, and there are a couple of other key people who will be involved in the Duck Pond project as they become available from Louvicourt. We expect to acquire mobile equipment and certainly we'll make use of any of the other mill infrastructures and so on that comes available.

Okay, that's great. Thanks very much, Jim.

Your next question comes from Steve Bonnyman from CIBC World Markets. Please go ahead.

Yes, hi good morning guys. Two questions, first I guess I don't think you publicly stated it, but Jim are you participating in the Enami process? Will you be bidding?

I think we'll definitely be invited to bid.

But invitation is nice, but will you be going to the party?

I'm not prepared to disclose that. I think that we like the Quebrada Blanca Mine obviously so we'll certainly be taking a good look at it.

Fair enough, second thing is you've highlighted the theme that we've seen from a lot of the companies reporting, particularly this quarter, and that's sort of inflation on the production where we're seeing the labor, reagents, energy; all of those other costs squeezing margins or at least pushing operating costs a little bit higher. Could you expand a little bit on how many of those you see as being specifically temporary to the growth phases that we're seeing globally or how many of those and again, not just to you, but on a broader basis are becoming sort of semi-permanent costs that are now being embedded in the industry?

My expectation would be that things like ocean freight in particular, acid costs which are a significant component of our reagent costs at both Andacollo and Quebrada Blanca will come down. I can't say with much in-depth knowledge what the impact of a bit of a slowdown in net world growth would have on the oil price, but I expect it could have some impact on that. I believe that if the copper price was to ease off that this would have a negative impact for the value of the peso which is a positive impact for Aur Resources because much of the GDP of Chile is tied to the copper business as the world's largest copper producing country. So I think a significant number of those different things that impact our costs and everybody else's costs today will realign themselves downward as metal prices come down. So it's kind of a built in hedge in a way for maintaining margins.

Thanks, and last question just to clarify on Gord Glenn's question. The CAD$92 million at Duck Pond, at this point that does not assume any synergies at all with materials or--?

No, it does assume some synergies with some major equipment from Louvicourt.

Okay, okay so we've already built some of that into it.

We have it secured so it's not something that we put a number in on the assumption we might get it. It's for equipment that we have already acquired.

Fair enough, so we've already built in, if you will, this sort of a larger chunk of synergies and we'd build from there on that?

A portion of that yes. A material portion of that has been accounted for.

Thank you very much, and congratulations on a great quarter.

Thanks.

Your next question comes from Brian MacArthur from UBS Securities. Please go ahead.

Hi, Jim, I just wanted to follow up. I know that you put out guidance in December at an LME price of $1.30; came in the LME with a $1.40 and that explains a lot of the difference between obviously what was guided back then with a little adjustment for pounds. But there's a statement in the QB section which I was little confused about that says: realized copper prices being $0.40 a pound higher than budget. What does that actually refer to?

I don't know. Is that the December guidance?

No, it's actually in this report under the Quebrada Mine section, the second paragraph or maybe I have the one off CNN or off the Newswire so it may wrong, but it says basically the gist of it is: operating revenues were $17.7 million higher than budget principally due to realized copper prices being $0.40 a pound higher than budget. Maybe that's $0.04, I don't know.

Well, the budget was $1.05. Where was it in 2004?

So that budget you refer to I guess is the year budget not the fourth quarter or what you used back in September or in December?

Oh, over here. Okay, no it's the realized prices were $0.40 higher than budget not its costs.

No, no but your--I'm sorry, if I said costs I apologize, but the $0.40 is budget I guess for the year not the--?

We [stated] $0.85 in our budget.

Oh, okay I just wondered why that what is there. It wasn't talked about in any of the other sections so it just seemed like a big number vis-a-vis, what? I mean I didn't realize you were--.

It was a big number because our budget was pretty low. Our budget comes in--.

I guess that was the original budget not what we were looking for when you were guiding--.

Well, that wasn't the December forecast. That was our budget that we put out at the end of 2003.

Okay, so the only difference in these realized prices is just the premium that you always get, and we've adjusted for all the timing pricing and there's no provisional pricing outstanding right now at all?

There's still a tiny bit of Louvicourt because Louvicourt was M plus 3 which means March pricing for the copper in December of '03. But it's not a material amount for us overall because Louvicourt is kind of a small potato.

So just going forward as David brought out, we should just use it as sort of--I mean I guess the next question is you're using a 4.5% premium you said when you guided at $1.20 yet you believe you're going to 8 and yes, there's going to be a bit of weighted average in the 25%. That's just why you're using a 4.5%--or a $0.045 premium in your guidance I guess.

$0.045 is what we used when we put together our budget for 2005 and it's a conservative one just like our $1.20 copper price outlook. But we actually subsequent to that time, we negotiated the LME premiums for 75% of our production and that leads us to know that the $0.045 guidance is lower. But we haven't gone back here in this outlook and re-done every line by line of our budget.

We've said, here's what it is at $1.20 which was where our original budget was and as I mentioned, we haven't gone through and done everything at $1.30, $1.40. We know that we get about $20 million of extra cash flow for every $0.10 a pound of difference in copper price. So you can take the $1.20 scenario, and if you want to use the $1.40 that's up to you. If you want to use $1.40, add $40 million to the cash flow. And if you want to use $1.30, then add $20 million to the cash flow.

Right.

That's roughly it.

No, I'm just trying to relate all the statements back together, but that's very helpful. Thank you very much.

[OPERATOR INSTRUCTIONS] Gentlemen, there are no further questions at this time. Please continue.

Okay, any questions here?

Yes, Ron James [inaudible] Barnes [ph]. Pudahuel at QB where do they stand now. I know they were bankrupt at one point and looking to sell I should think in QB, has that changed? Where do they stand?

No, that's changed. Well, Pudahuel hasn't changed but the private investor in Chile acquired Pudahuel. Basically they bought the bank debt and restructured, so we now have a new owner of the company, and a good partner. They're very good people. They're very interested in maintaining their interest in the mine, and we expect to have them as a good solid partner going forward.

Okay, thanks.

Thanks, Jim Rigoldi [ph], I was wondering in your guidance using $1.20 copper for this year what percentage of attributed cash flows you're assuming come from Andacollo and Quebrada Blanca?

Just a second to find it here. It's about--if you divide it up, Quebrada Blanca is 4 times as big as Andacollo; so 20% Andacollo and 80% Quebrada Blanca.

No, I mean what's the ownership of [inaudible]? Assuming you're getting 90% of the cash flows all the way through for QB line? Half the way through the year do you assume--?

We simply assume that the cash will be paid for. We will pay all of the debts before the middle of the year. So the cash will stay in the companies. No dividends will be paid.

Cash, consolidated cash will be all of the cash held in those companies, and then there's the liability equal to the partner's ownership interest in there. That's correct.

And only when the debt is repaid, the shareholder debt is repaid will the non-controlling interests increase so that would occur in the third quarter 2005.

So for QB you would have, you would own 90% of the income for the first half of the year, and 76.5%--?

That's essentially the case.

In Quebrada, and I'm sorry and Andacollo is essentially the same deal?

No, it would be the same.

How much debt is repaid then as well?

[inaudible] so it would go from 70 to 63. Comes down a lot to when the cash actually comes in because once you have enough on the balance sheet to pay the debt then the question is do you have an obligation to pay the debt at that time. In the case of the senior debt it's over-purchases of the bank debt so in a sense we are now the bank and there's certain prescribed payment deadlines for them. In the event that we have a lot more cash than we have debt payments, essentially the component that the shareholders are entitled to, pardon me, their pro rata share of the excess over what the debt component is.

Legally we do not have to pay the debt off until June. We could elect to pay it off earlier, and I would anticipate that if we have the cash available that the minority shareholders would prefer to see us pay the debt off earlier because we're paying interest on the debt they're paying into us and we're one of the shareholders.

So there's a slight difference between when you actually have the capacity to repay the debt and when you actually have a legal obligation to repay them. It's convoluted.

So this is for consolidation of the cash, you will take it out of their 26% interest?

It will become an account payable. Well, what essentially what happens is you always have to fully consolidate so you have to take 100% of the assets and liabilities. What shows up is the minority interest or the non-controlling interest category. That's where their interest or our interest from 100 gets reduced down to 76%.

On the earnings side?

That's on the earnings and on the balance sheet as well.

But that's a true reflection of the minority interest that you've acquired, or at least, or should subtract that off of cash is what you're saying?

Exactly, because it is Aur's share, that's right.

And on the cash is there any restriction on how long you can hold that cash and bottle up these funds?

In the case of Quebrada Blanca Mine, Jim, once all of the debt is repaid, there's a requirement by shareholder agreement to pay not less than 30% of the free cash flow in the form of dividends. We do not have that requirement in Andacollo.

Jack Pond [ph], is there going to [inaudible]? And on the equipment synergies, are you buying the equipment of Louvicourt assuming they may be done, at sort of second-hand market prices for the equipment?

Any purchase of equipment from Louvicourt would have to be done in an arms length negotiation with our two small partners, Teck and Noranda. I can assure you that we're going to be paying fair value.

So on the equipment side, [inaudible] availability and just sort of [inaudible] market rates for this equipment?

There's definitely synergies to compare to what we had in the original feasibility study. A portion of those synergies have already been incorporated in our CAD$92 million capital cost estimate. There is a component of synergies which remains to be realized, we expect which could help to reduce that capital cost. But we have not quantified all of those at this point in time because we haven't established what of that equipment we actually could use.

But that's on the basis of buying used equipment versus new equipment?

Yes. Any other questions? Okay, well listen we thank you very much everybody and we look forward to keeping the process going fine; with money coming in, the first quarter is looking good. That's for sure, so let's hope it carries on for the next three as well. We'll talk to you again I guess at our next conference call in April/May. I guess it's May because our Annual Meeting is on May the 5th and we usually give out our quarterly results then. So it will be on May 6th I guess. Okay, operator, thanks a lot.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating and please disconnect the lines.