Teck Resources Ltd (TECK) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Aur Resources fourth-quarter results conference call. At this time all participants are in a listen only mode. Following the presentation, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS). I would like to remind everyone that this conference call is being recorded on Friday, February 10, 2006 at 9 AM Eastern Time. I will now turn the conference over to Jim Gill, President and CEO. Mr. Gill, please go ahead.

Thank you. Good morning, everybody, and welcome to Aur's fourth-quarter and year-end conference call. We will follow our usual format, where I will review the technical results, following which John Knowles will present the financial results. Following this, we will take questions first from those attending by telephone and then from those present here in the room.

2005 has been a great year for Aur and for the mining business in general. Copper prices and record production at both the Andacollo and Quebrada Blanca mines combined to give Aur record earnings of 142 million or $1.80 Canadian per share. Cash flow from operating activities of 249.8 million or $3.17 Canadian per share was also a new record, leaving the Company with consolidated cash of $361 million or $4.50 Canadian per share at year-end after paying 11.8 million of dividends to Aur shareholders and 32.7 million to the minority shareholders of Quebrada Blanca.

In 2006, we expect to produce 227 million pounds of copper at Quebrada Blanca and Andacollo; initiate production at our Duck Pond mine in Newfoundland and complete the final feasibility study, leading hopefully to a decision to develop the Andacollo hypogene copper deposit. At a copper price of $2 a pound, we expect net earnings of about 138 million, cash flow from operating activities of about 247 million or $3.20 Canadian per share, and our cash balances to rise to $455 million.

We believe that our strategy of acquiring, developing and operating low-cost reliable mines with sufficient reserves to ensure production throughout the metal price cycles is fundamentally sound and has resulted in Aur's successful growth today and placed Aur in the best position it has ever been to grow in the future.

I would like to remind everyone that Aur is a U.S. dollar reporter so all the dollars that are stated here will be U.S. unless we state otherwise.

Turning to production, in the fourth quarter of 2005, Aur's share of metal production from the Andacollo and Quebrada Blanca mines was 60.3 million pounds of copper. Cash operating costs per pound of copper sold was $0.71. Cash flow from mining activities was $92.5 million and capital expenditures in the mines were 3.6 million.

For the full year 2005, Aur's share of metal production was 240 million pounds of copper, 8.8 million pounds of zinc and 138,000 ounces of silver and 4500 ounces of gold with new production records being established at both the Andacollo and Quebrada Blanca mines. As you are aware, the Louvicourt mine closed on July 12.

Cash operating cost per pound of copper sold net of byproduct credits was $0.67 in 2005 and cash flow from mining activities was 262 million after net capital expenditures of the mines of 8.7 million.

Turning to the mines themselves, mine closure and [plate] reclamation activities are now in progress at the Louvicourt mine, which closed in July and are scheduled for completion in 2006. Louvicourt was one of Canada's most successful mines and provided Aur and our partners with a return on invested capital of about 45% after-tax.

At Andacollo, the fourth quarter of 2005 was an excellent one from an operating standpoint. We moved 3.9 million tonnes at a strip ratio of 3.3 to 1. 0.9 million tonnes of this material was ore at a soluble copper grade of 0.7% copper. Production was 13.1 million pounds of 100% LME grade A copper, 1.2 million pounds higher than our budget. Cash costs per pound of copper sold including marketing, transportation and administration was $0.69.

Capital expenditures in the fourth quarter at Andacollo were $3.4 million, of which 1.8 million was spent on the hypogene feasibility study, 0.7 million on the dump leach project and the balance principally on major equipment overhauls. Cash flow from operations was $17.2 million.

For the full year 2005, at Andacollo, we moved 18 million tonnes of material, of which 4.1 million tonnes was ore at a grade of 0.72% soluble copper. Production established a new record of 51.6 million pounds of 100% LME grade A registered capital copper and cash costs per pound of copper sold was $0.65.

Capital expenditures in 2005 totaled $7.2 million, of which 1 million was spent on the dump leach project, about 4.2 million on the hypogene feasibility study and 1.7 million on major equipment overhauls. Cash flow from operations was 65.1 million.

The Andacollo mine had its best year ever in 2005 and we expect another good year in 2006, with copper production of 51 million pounds, cash operating costs of $0.62 per pound of copper sold and cash flow from operating activities of about $68 million at an average copper price of $2 a pound.

On the capital front, we expect to complete the construction of the dump leach facility and produce about 1 million pounds of copper from it in 2006 to complete the hypogene feasibility study and also to complete a small heap leach expansion and continue the truck overhaul program at a total cost of about $6 million.

Turning to Quebrada Blanca, the QB mine had a strong fourth quarter in 2005. In the fourth quarter, we moved 9 million tonnes of material of which 2.1 million tonnes was heap leach ore at a grade of 1.2% soluble copper and 3.2 million tonnes was dump leach ore at a grade of 0.34% soluble copper.

Production was 47.2 million pounds in the fourth quarter about 1.2 million pounds above our budgeted expectations. [Cap] of quality was 100% LME grade A. Copper sales totaled 47.3 million pounds in the quarter and our cost per pound of copper sold was $0.74.

Cash flow from operations was $45 million and we spent about 1.1 million on capital and investments during the quarter.

For the full year, the mine moved 36.6 million tonnes of material of which 7.7 million tonnes was heap leach ore at a grade of 1.15% soluble copper and 12.6 million tonnes was dump leach ore at a grade of 0.34% soluble copper.

Production was a new record of 177 million pounds or 80,282 tonnes. Capital quality was 100% LME grade A and copper sales totaled 176.5 million pounds. Our cash costs, including transportation, marketing and administration for the full year at QB were $0.69.

Capital expenditures were 1.6 million in 2005, of which 0.5 million was spent on maintenance and overhauls, 0.4 million on drilling equipment and 0.6 million on engineering studies related to a possible crusher expansion. Cash flow from operations was 118 million in 2005.

In 2005, QB had its most profitable year ever, thanks to the high copper price and record copper production. In 2006, we expect another very good year with 176 million pounds of copper production at a cost cash of $0.71 per pound of copper sold. Cash flow from operating activities is expected to be about 197 million at a copper price of $2 per pound. Capital expenditures are expected to be about 7.7 million, of which 4.5 will be from major equipment overhauls and 2.8 million for a variety of projects related to the camp, water supply and fuel efficiency.

Turning for a minute to our development projects, the Duck Pond copper zinc deposit in Newfoundland remains on schedule to begin production in the fourth quarter of 2006. The ramp had advanced to about 1,235 meters at the end of January this year; the power line has been completed and energized; the mill building is essentially enclosed; and major mill equipment is on-site. Our communications, camp facilities, waterlines and laydown areas are operational and site clearing for the tailings pond is in progress. Key senior operating staff are on-site with total manpower including contractors now totaling about 130 people. Capital expenditures were 30.4 million in 2005.

In order to optimize mine production in 2007 and improve flexibility in the mine, a decision was made to accelerate our underground development work in 2006. This additional work at a cost of 3.7 million would include about 430 meters of additional underground development as well as about 20,000 meters of definition drilling originally planned for 2007. A decision was also made to purchase rather than lease the mine mobile equipment, which will increase the initial capital by about 7.2 million but reduce cash to operating costs going forward. The total precommercial capital investment will therefore be 72.2 million with the original scope of work plus 11.8 million of additional expenditures for the scope of work changes less precommercial production net revenues of about $6 million for a total of 78 million.

In 2006, 5.6 million pounds of copper and 10.2 million pounds of zinc in concentrate are scheduled to be produced at Duck Pond, the estimated revenues from which will be credited against the capital expenditures. The net capital development costs for Duck Pond are now forecast to be 82.2 million -- I'm sorry 78 million.

In January, 2006, Aur sold forward 256 million pounds or 116,300 tonnes of zinc to be produced from the Duck Pond mine during the period July 2007 to December 2011. These forward sales, which represent 75% of the planned zinc production during this period, have been made on an equal monthly basis at an average price of about $0.72 per pound over the 4.5-year period. The impact of these forward sales on Duck Pond will be to ensure U.S. 55 million of revenue in excess of our feasibility study estimates, which represents about 68% of our total capital development cost estimate and essentially ensures that zinc revenues will exceed total operating costs at the Duck Pond mine.

Turning to the Andacollo hypogene copper deposit in Chile, the final feasibility study for this deposit is progressing and is expected to be completed near the end of March 2006. In 2005, approximately 4.2 million of the $5 million budget for this work was spent. The final feasibility study is well advanced with respect to mine planning and capital cost estimates and the environmental permitting procedures have been initiated. The major construction work to prepare this deposit for production consists of the construction of a 50,000 ton per day flotation mill to produce copper concentrates and a facility to store mill tailings.

The Andacollo hypogene copper deposit has the potential to produce approximately 175 million pounds of copper and 59,000 ounces of gold annually for a period of over 20 years. A decision with respect to the development of this large deposit is expected to be made following the completion of the final feasibility study.

Turning to business development, Aur's expenditure on its exploration projects and the identification and evaluation of acquisitions were 3 million and 7.4 million in the fourth quarter and in 2005, respectively. Drilling is now in progress on the Juan Godoy copper project in Chile.

Progress on resolving the land access issues at La Verde in Mexico has been slow and drilling to evaluate this copper discovery made earlier this year remains suspended.

The search for development-stage deposits and/or producing mines which will meet Aur's investment criteria, of course, is ongoing and includes work in Africa, Eastern Europe and CIS countries, as well as the Americas. A number of assets have been identified and are under evaluation.

That brings you up to date on the technical side and I would now like to turn the meeting over to John, who will take you through the financial results for the fourth quarter and the full 2005 year. John.

Thanks, Jim. Aur completed an excellent quarter and financial year in 2005 with record revenues, earnings and cash flows. The Company achieved record results from its mines in Chile, as Jim has pointed out. It marked a successful completion of production at the Louvicourt mine in Quebec and commenced construction of its Duck Pond copper zinc mine in Newfoundland. Of course, Aur's strong production was leveraged upwards by strong metal markets with LME copper prices averaging $1.95 in the pound and $1.67 for the year. Jim has mentioned and I will remind you that all the financial amounts that I mention will be in U.S. dollars unless I say otherwise.

The records achieved by Aur in the fourth quarter included operating profits of $64.2 million, net earnings of 41.5 million and cash flow from operations of $89.3 million. The Company's cash balances increased in the quarter by 35.1 million after dividend payments of 32.7 million to noncontrolling interests. And the Company's closing balance in cash of 361.3 million is the highest in its history.

Now looking first at the statements of operations for the fourth quarter, net earnings were 41.5 million or $0.53 Canadian per share in the fourth quarter, 24% higher than earnings for the same period in 2004. Mining revenues at $132.7 million were some 36% higher than revenues of 97.9 million in the fourth quarter of 2004 and the result of efficient and productive operations in a period of very favorable prices.

On top of the attractive LME prices, Aur's sales in an environment of rising prices resulted in quotational period metal price adjustments, which together with the premiums obtained, totaled $0.24 a pound. As a result, Aur's total realized copper price was $2.19 per pound in the quarter. This is 47% higher than the $1.49 per pound realized in Q4 of 2004.

For the full year, Aur's realized copper price of $1.83 per pound for the year compares favorably with both the LME average of $1.67 and the realized price during 2004 of $1.38.

While metal prices were a major factor, higher production and sales at Aur's operating mines in Chile also contributed to the record financial results. Compared to the fourth quarter of 2004, production at Andacolla was up 3% while Quebrada Blanca achieved a 5% increase in copper production.

Mine cash operating costs were $42.9 million in the quarter versus 41.1 million in the same period of 2004. Overall, unit costs were $0.71 a pound as compared to $0.60 a pound in the fourth quarter of 2004. Increased costs of energy, acid and transportation together with the effects of the weaker U.S. dollar against the Chilean peso accounted for the bulk of these cost increases.

Business development and administration costs were $2.6 million higher in the quarter than in Q4 of 2004, reflecting the increased activity in identification and evaluation of acquisition opportunities, as well as specific additions to senior management staff.

Depreciation and amortization and interest expense were in line with our expectations at $8 million and $2.1 million, respectively. Interest and other items netted to a positive $400,000 as compared to negative 400,000 in the same period of 2004. The main components of these other items are interest income of $3.4 million, offset by 2.9 million in accrued price participation and payable to ENAMI, which is the Chilean government entity.

Income taxes and noncontrolling interest expense were $15 million and 17.2 million versus 9 million and 5.6 million, respectively, in the same period of 2004 on the basis of the higher profits.

Looking at the statements of operations for the full year, net earnings were $142.3 million or Canadian $1.80 per share, 47% higher than the earnings of 96.9 million for 2004. Operating revenues at 446.9 million were approximately 33% higher than the revenues earned in 2004. And Aur's realized copper price I've already mentioned, very favorable.

From this record earnings, Aur declared its highest-ever level of dividends totaling $0.20 per share or $16.1 million in the year. This included a special dividend of $0.10 per share as compared to total dividends of $0.10 or $7.9 million in 2004.

Jim has already mentioned the new records in production that were achieved. Full-year production at Andacollo with the 6% increase against the previous record, 12% better than 2004 and Quebrada Blanca, with an increase of 9 million pounds or 5% over 2004. Both mines set new milestones.

Mine cash operating costs were $167.2 million in 2005 versus 146.7 million in the previous year. Again, energy and consumables, especially acids, together with the strength of the Chilean peso against the dollar were the main contributors to the cost increases and the unit cost of copper sold was $0.67 per pound in the year as compared to $0.57 per pound in 2004.

Business development and administration costs were $4 million higher than the previous year, again reflecting increased activity in staffing in those areas. Depreciation and amortization and interest expense were in line for the year with our expectations at $32.8 million and 8.4 million, respectively. Interest and other items for the year netted $4.4 million positive versus essentially nil in 2004.

Interest income was 9.5 million and this together with 1.9 million in gains on sales of marketable securities exceeded the $6 million ENAMI copper price participation and other miner costs.

Income taxes and noncontrolling interest expense were 40.1 million and 40.7 million, respectively, versus 23.3 and 17.7 million in the same period in 2004 and the result of higher profits.

Turning to the statements of cash flow, Aur's cash flow from operating activities was 89.3 million in the fourth quarter and $249.8 million for the full year. Respectively in Canadian dollars, $1.13 per share for the quarter and $3.17 for the full year.

Financing activities used $33.3 million and 49.1 in the fourth quarter and full year, respectively. The major items in both periods being dividend payments of 11.8 million and payments to noncontrolling interests of $36.3 million, of which 32.7 was dividended to Quebrada Blanca minority shareholders.

Investing activities used net amounts of $21 million and $46 million in the fourth quarter and full year, respectively. A total of 49.1 million was invested in property, plant and equipment during the year as compared to 6.1 million in 2004. The major components of this were a $10 million price participation payment to Teck Cominco relating to the Company's previous purchase of Quebrada Blanca; $30.4 million invested in the development of Duck Pond; and 4.2 million, as Jim mentioned, on the Andacollo hypogene feasibility study. The remaining capital expenditures at Andacollo and Quebrada Blanca were mainly sustaining in nature and were less than the amounts in 2004.

Looking now at the balance sheet. At the end of the year, I've mentioned that Aur's cash balance was $361.3 million or Canadian $4.52 a share, up from 326.2 million at the end of the third quarter in 2005 and $206 million at the end of '04. The Company is well-positioned to carry out its plans for growth with a strong net cash position. That is, when I say net cash, cash exceeds borrowings under the senior unsecured notes by $236.3 million.

Current assets are 435.9 million with the majority of this being cash and current liabilities are 94.2 million, resulting in working capital of $341.7 million, an increase of 120.4 million over the working capital at the end of 2004.

Other significant balance sheet items include property, plant and equipment, which increased by a net $16.4 million to 290.9 million, essentially the result of capital additions in the year primarily at Duck Pond exceeding depreciation and amortization.

The dividends payable of $12.4 million on the balance sheet were paid in January 2006 as were the majority of the price participation amounts, i.e. the payments to Teck Cominco. Non-current liabilities include senior unsecured notes and capital leases at $125 million and 6.1 million, respectively, future taxes of 24.9 million, 26.8 million in costs accrued for mine closure and restoration and noncontrolling interests of $33.1 million.

Now, I'd like to give you an overview of our financial outlook based on the forecast which Jim has already mentioned. And on this basis, our forecast revenues will total $464 million with mine operating costs of 158 million. After business development, administration and senior notes interests of 26.3 million in total, operating profit is expected to be approximately $280 million. Net earnings are forecast to be 138 million or Canadian $1.79 per share after other expenses, including depreciation and amortization, mine closure, taxes and noncontrolling interests totaling 142 million.

Cash flow from operations is projected to be $247 million and from this, expenditures of 62 million will be made on financing activities, which will include 44 million in payments to noncontrolling interests and $15 million in dividend payments; plus investments of 91 million, including $61 million on Duck Pond, 14 million at the Andacollo and Quebrada Blanca mines and $16 million in copper price participation payments. On this basis, the Company's cash will increase by $93 million to 455 million at the end of the year.

As I mentioned, our projections for 2006 are based on an average copper price of $2 per pound during the year. In these volatile markets, we're all interested in sensitivities to movements in the key drivers and copper is far and away the most significant external factor on Aur's 2006 results.

We have looked in the materials sent out at the end of business yesterday at the effect of a $0.50 price swing in copper on Aur's projected earnings and cash flows. The effect of such a movement would be to increase or decrease earnings by approximately $66 million or Canadian $0.85 a share. The same price movements would change cash flows from operations by $114 million, the difference being primarily the delayed effect of price participation and noncontrolling interest payments.

That completes my remarks on Aur's financial performance for both the fourth quarter and for the year.

And now I'd like to turn the microphone back to Jim.

Thank you, John. Well that concludes the information we wanted to present to you this morning. Now I'd like to ask the operator to open the telephone lines for questions from those participating on the phone and once that's completed, we will deal with questions from people here in the room. Are you there, operator?

Tom Meyer, Raymond James.

Good morning, I had just one quick one. I noticed that you have hedged some of the future production at Duck Pond. Is there any inclination to hedge on the copper side this year, given the high prices?

No.

One other question on your cathode premium. Is it true that you're getting about $0.10 a pound at QB right now and what do you expect for the balance of '06?

There are two components to the premiums that we get at either Quebrada Blanca -- at both Quebrada Blanca and Andacollo. One is our annualized contracts. In the case of Quebrada Blanca, we have approximately 75% of our forecast production, which is 80,000 tonnes is the whole so 75% of that has been sold at an LME premium that's been on the order of $0.07 or $.075 per pound. The remaining 25% will be sold on the spot market as it becomes available and we will have to take the premium that's available at that time. Generally speaking, spot premiums at this time are lower than the annualized premiums that we have contracted for the bulk of the year.

David Charles, GMP Securities.

Good morning. John, you ran through the numbers on minority interest and I suppose it was the number on CapEx that I missed. Could you give me those numbers again?

Are you talking about the forecast, David?

Yes, the forecast. I think it was a 69 million number and then you broke it down?

Yes, one moment here. 62 million -- oh sorry, 91 million on investing activities. The total of that is comprised of $61 million at Duck Pond, $14 million at Andacollo and Quebrada Blanca combined and $16 million in copper price participation payments.

Okay, that's what I was looking for. Maybe just a little bit on the hypogene at Andacollo. You're going to produce -- obviously, you're not going to really talk a lot about the feasibility study because that's going to come up later on this year. I'm just wondering, we heard the other day from Falconbridge that obviously the lack of skilled people, etc., is causing delays in construction. I'm just wondering, Jim, when you think this project if you were to make a decision in '06 when you think this project might be constructed and up and running?

Our plan would be to have this in production in 2009.

And would that be early, late? I know this is sort of a tough question to answer.

Yes, it would be early or late. It's very difficult to say today. We appreciate that there are some constraints in getting access to some of the engineering people that you need and construction people. We are in a bit of a good position there because of course we have a fully operating workforce there from the mine side and there's very little to be done in the mine. It's really a matter of the plant, the mill that would require us to ensure that we were able to get all of the proper construction and engineering people on site.

And can you just give us what you have released in the past as a CapEx number on that?

What we released in the past was $311 million U.S.

U.S. And of course you will come up with a more up-to-date number later on this year?

Yes, we will.

Sorry, go ahead?

I wouldn't anticipate it being materially lower.

Is that a subtle way of saying it might be higher.

Not that subtle, but I wouldn't suggest that we have any information yet to be seriously concerned about major, major increases.

One of the other issues in the industry, I'm just wondering what your comments are -- I heard when you were talking about the hypogene that you were talking about water. I mean what's the situation concerning water availability for a plant like that?

There is water available. A certain amount of it we own already. We have not finalized the exact location of where all the water will come from but we do not feel concerned about our ability to have sufficient water for the operation.

Maybe just on La Verde, I know you mentioned that there's maybe not really a lot more to say but I'm just wondering compared to maybe where you were in the third quarter, I mean is there anything really bad? I mean is it still the same issues of negotiations with people?

I think we can add that the frustrations that we had experienced since last June, there's still an element of that there. We remain optimistic that something will get worked out in the not too distant future and we have a drilling program that's going to be in the order of 1.5 million to $2 million for 2006 on the assumption we can resolve the issue. As soon as we have resolved it, I am sure we will let everybody know.

Greg Barnes, TD Newcrest.

Jim, are you still going to be selling month +1 on your copper sales this year?

We actually haven't sold at M+1. We were at M+2 in 2005 and our longer-term -- our contracted copper sales for cathode in 2006 at both QB and Andacollo are at M+2.

Second question, cash costs have gone up over the past couple of years. How much of that do you think is sticky? If copper prices come down let's say to $1.50, $1.25, $1.30, where do you think cash costs at QB or Andacollo will go? I guess it's also an oil price question too, but.

I believe they will go down. I think that if you look at the relationship between the Chilean peso and the price of copper, there's practically a direct correlation. And one of the reasons why our costs of course have been going up in the last half of this year, despite the fact that the oil price hasn't really changed a whole hell of a lot is because the copper price is so high that the Chilean peso actually bottomed out or topped out depending on which side you're on, at about 5.15 to the U.S. dollar in the fourth quarter at certain points in time.

So our view is that in the event that the copper price was to move down that our costs would be positively affected by a weakening in the strength of the Chilean peso and we are already seeing some reductions in asset prices and other reagent prices for 2006 from the peaks in 2005 and we would expect that we would see some additional reductions in that area.

I think we would be less confident that the oil price will back off from the $60 that we have used. So, I think it would be unrealistic to anticipate that our costs would go back to what they were before this sort of economic boom started. But I think we would be able to move down from the 69 into the low 60s.

Greg, maybe I could add that in the cost increase of $0.10 year on year per pound, about 40% of that was oil price related. About another 40% was inputs that were primarily acid and the remainder was labor and other costs and exchange rate impacts. So if that gives you some help on factoring in your oil price assumptions, you can take that.

Lawrence Smith, Blackmont Capital.

Good morning, a question for John. This goes back to an earlier question about the premiums on copper sales. Would it be possible to break out your realized price per pound in copper, how much related to the market premiums and how much related to the quotational period adjustments? Or failing that, could you just give us one number for how much the quotational period adjustments were? Thank you.

Approximately out of the $0.24 per pound difference as against the LME for the, I think it was the quarter, and I was just going to check that, about $0.07 related to premium and the remainder is the quotational period price adjustment. We're getting that of course in a rising market.

Tony Lesiak, UBS.

Good morning. Jim, could you elaborate on your acquisition strategy? You have identified a number of assets. Maybe comment on preferred location, size, optimal capital structure, and whether your parameters have changed at all?

Well, our location is where the deposits are. As you can see, when we talk about our business development priorities and these are proactive priorities, we're focusing as you would expect on the Americas, where we are already involved quite heavily and from our new London office, we are looking in CIS, Africa, Russia, Eastern Europe, and we're not yet at the stage where we've selected any one of those particular areas as a very high priority. But we are looking at opportunities and assessing the various risks and rewards for many of those jurisdictions.

Our criteria really haven't changed very much. We want to have deposits that are very large, high-grade, low-cost that make lots of money. But to be a little less obvious about it, we want to have deposits with a minimum of 10-year mine life. The reason for that is fairly clear. We have seen what metal price cycles are like and we don't want to operate a mine throughout the downside of the cycle and then close it the year before the good times come. And the cycles in copper generally have been on the order of eight years, so a 10-year life seems to work. It worked very well at Louvicourt. It is working at Andacollo and it's working at Quebrada Blanca. So we don't seem to have a reason to not stick with that policy.

I guess our most fundamental criteria is we require a 15% after-tax return on invested capital and long-term metal prices that are subject to some discussion at the moment internally, traditionally, have been at $1 copper price long term. At this point time, we believe that the long-term copper price will be higher than that, probably $1.20 and we'll be putting those numbers into our equations also.

Just in terms of I guess where you are looking more closely in terms of a more balanced risk/reward profile, would you say that that's more the Americas or more CIS and Africa right now?

Well, I think it's fairly clear that given our heavy involvement in Chile in particular that an investment in Chile is something that would be lower risk in our view simply because we have good operating experience there, we have people there, we have money there. So that obviously, if we had to choose between two deposits with equal reserves, operating costs and all other things and one of them was in Chile and one of them was in Botswana, I think we would take the one in Chile.

What are your thoughts in terms of your competitors? I think for the most part, the seniors are still looking at sub $1 in terms of their capital budgeting long term. Do you see that as an advantage for yourself?

If they are wrong, yes. We think they will be.

Jacob Willoughby, Paradigm Capital.

Good morning, guys. I saw that in Q3 and Q4, your cash costs were $0.71 a pound and you forecast for $0.69 for the year. I'm just wondering how you see the costs going down from here?

Well, I think Jim has already mentioned that we're seeing some reduction in acid costs. To be consistent with slightly lower price projections, we would expect some other reductions in input costs and we will have to see where the exchange rates go on the peso. As I think Jim mentioned also, we have used rightly or wrongly $60 a barrel for the oil price in 2006.

John Hughes, Desjardins Securities.

Thank you, operator. Most have been answered. Just more of a follow-up I guess to your outlook and thanks for the detail in the quarter and the outlook; it really helps. In terms of your reference for 2006 to the $2 a pound, is that a reference to the LME cash price?

Yes, it is.

So does that $2 include any adjustment or expected or forecast adjustment for the quotational period?

Well the results reflect that. We will (inaudible) produce a premium but if we're using $2 a pound, then that is lower than where we were at year-end of 2005 so there would be some downward adjustment in quotational period pricing, which is reflected in the forecast results.

So what you are referencing then is just the pure LME cash price and we would make any adjustment for that quotational period based on what we see?

Yes.

David Charles, GMP Securities.

This week I saw a piece that said BHP may be looking at selling Tintaya. I mean, I'm just wondering, seeing that that is in South America, would that fit as a possible acquisition target for Aur Resources?

Well, if it has the potential to meet our 15% after-tax return then I guess we would have to say yes.

Are you aware that it really has been put on the block? Because I looked on the BHP Web site and there was no specific press release but I saw it on another source. Are you aware that maybe it is out there as a possible sale?

I saw something that came through on Reuters I think suggesting that they were considering the possibility of selling it but I haven't seen any formal statement from them.

Lawrence Smith, Blackmont Capital.

Good morning, again. This is sort of a follow-up to the discussion on long-term copper price and I guess it's more of a philosophical question. Do you think the change in your long-term copper price assumption really makes that much difference at evaluating projects because as we found over the past couple of years, it seems that costs adjust to whatever the copper price environment is. So would the margin in fact really change that materially? Thanks.

Of course, we like to think that the higher copper price will result in higher profitability because of the growing margin. As long as your costs don't rise at the same rate as the price of copper rises then that should be true.

But I think your point that if you use the higher copper price and you then use a higher operating cost price then the long-term impact over a 15 or 20-year period probably isn't going to have a huge effect on it.

Where it could have an effect on it and it may well have an effect on our situation also is that for instance we have done all of our existing reserves using $0.95 or $1 a pound. And we intend to go back and revisit the reserves using a higher metal price. So there are two parts to it.

One is you can grow up on the revenue line and simply add copper price and multiply by the pound and jack up the revenue. But over the longer term, you have to go back in and revisit your mineable reserves if you're going to make that change.

In the case of massive volcanogenic sulfide deposits, often the cutoff grades are very sharp; you go from high-grade ore into nothing over a matter of a couple of feet, so that may have very little impact. Generally speaking in the lower grade pore-free type disseminated deposits, it could have a material impact on resources.

Gentlemen, we have no further questions at this time. Please continue.

Okay, thank you. I guess we will open the floor here for questions. Any questions here?

Ray Goldie with Salman Partners. A quick question for Mr. Knowles on the '06 outlook, what Canadian dollar exchange rate do you assume?

We have used an $0.80 dollar in that outlook.

So, if I can direct the Canadian dollar per share into the U.S. dollars per share earnings, I can [inaudible question - microphone inaccessible].

Yes.

Thanks very much.

Our Canadian dollar exposure isn't' that high [so far], because most of our revenues are U.S., most of our expenses are in U.S. dollars or pesos. But you have to do the math.

Any other questions? Okay, well, listen, thank you very much, everybody. Let's hope the copper price stays strong; it's looking pretty good. One comment I will make is that every day the copper price is $2.30, the chances of it averaging $2 over the year gets better. So we're not uncomfortable with our current view that an average price of $2 this year is unrealistic. So, we'll see everybody or hear everybody I guess at the next one, which will be at the beginning of May when we put out our first quarter. Thanks again.

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