Taseko Mines Ltd (TGB) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2005 Taseko Mines' earnings conference call. My name is Amanda, and I will be your coordinator for today.

[OPERATOR INSTRUCTIONS]

I would now like to turn the presentation over to Mr. Brian Bergot, Investor Relations. Please continue, sir.

Thank you, Amanda. Good morning, ladies and gentlemen, and welcome to Taseko Mines' second quarter 2006 results conference call. My name is Brian Bergot, and I am the Investor Relations' contact for Taseko. With me today in Vancouver is Russell Hallbauer, President and CEO of Taseko; Jeffrey Mason, Secretary, CFO and Director of Taseko; and John McManus, Vice President of Operations for Taseko.

After opening remarks by management, which will review the business and operational results for the second quarter, we will open the phone lines to analysts and investors for a question-and-answer session.

I would also like to remind our listeners that our comments and answers to your questions may contain forward-looking information. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Please refer to the bottom of our latest news release and to our 2005 "Management's Discussion and Analysis" for more information.

I will now turn the call over to Russ for his remarks.

Thank you, Brian. Good morning, everyone. Thank you for joining us today to discuss Taseko's second quarter and year-to-date 2006 financial and operating results. I am pleased to report that Taseko recorded after-tax earnings of $3.1 million for the quarter and $9.8 million for the year-to-date and operating profit of 7.4 million for the quarter and 15.5 million year-to-date.

The Company presently has $37 million in the bank. Our Gibraltar Mine produced 12.8 million pounds of copper and 231,000 pounds of molybdenum during the quarter, with sales of 13.2 million pounds of copper and 243,000 pounds of molybdenum respectively. Later in the call, Jeff Mason, our CFO, will explain to our listeners some of the financial aspects of foreign tax filing that affected earnings this quarter.

The Company realized US$2.06 per pound on its copper sales and US$22.16 per pound for molybdenum during the quarter, while the average LME price for copper was US$2.24 per pound and the slightly lower realized price was a reflection of an inventory price adjustment from previous quarters and timing of sales. Jeffrey will speak to these matters, as well, later in the call.

If we look further in the field and view the comments of some of the world's largest mining companies in terms of where they believe metal prices will be over the next few years, we see huge opportunities for this company. Cathode copper futures curve is copper at $2.87 per pound out 27 months.

While much speculation is being generated about what's going on in the copper market, I believe that the comments from the world's largest copper producers - who were indicating that they expect prices to remain strong because of market conditions -- should be our guide. The fact that we made the decision to remain unhedged is adding significantly to our profitability as we continue to sell into this [bullying] copper market.

If we look out towards the latter part of this year, as we continue to sell our production in the present prices we are experiencing, our financial results for the year will be very impressive. For example, we just completed a sale of 4 million pounds of copper at US$3.40 per pound, which will result in nearly US$2 per pound margin for the Company.

The financial performance we are experiencing will allow management to reinvest in our business for the long-term. Today, I'd like to give a brief overview and update on work underway at Gibraltar and update you on the exciting work we are undertaking on our Prosperity property.

In terms of operational issues, as I indicated in past calls, we continue to focus on three key areas at the mine side: copper recovery, moly recovery and mill throughput. We are happy with our work in the copper floatation circuit, where we have increased the recovery from Q1 '06 of 78% to Q2 '06 of 79.8%.

I might add that this is up from 77% in Q4 '05. While at the same time, we maintained moly circuit recovery at roughly 43%, up from the low 20s in the pervious year. Added improvements will be made on both these circuits in the months ahead.

After successfully attaining our production and mills throughput goals in the first quarter, the mine had minor difficulties with mill availability in the second quarter, which affected our metal production during the latter part of this quarter. While this is disappointing from management's perspective, it is the nature of this business that events will occur that are beyond our control at times, and this to a large degree is what occurred this quarter.

We are comfortable with the way the operation is moving ahead and the great number of operational improvements. And while the quarterly results are lower than our expectations on an annualized basis, we feel very comfortable with our plans and where we will be, as we move ahead at the mine. John McManus will speak to some of the particular operational problems, we experienced, later in the call.

As I indicated in past calls and our AGM, Taseko's management is focused on the long-term development and growth at not only Gibraltar, but also pushing very aggressively in developing our Prosperity project and continuing to work with Teck Cominko in the hydro-met refinery.

First, I'd like to give a short overview of ongoing Gibraltar initiatives. The mill expansion, which we announced a few months ago, will afford many opportunities for Gibraltar.

Firstly, we will have the benefit of increased tonnage to the concentrator, and with the detailed engineering now fully engaged, we have ascertained that a further nominal capital expenditure of a larger horsepower SAG mill motor will allow the SAG mill to produce and process up to 50,000 tons per day as opposed to the 46,000 tons per day, we reported in our original press release.

The addition of the new SAG mill along with the reconfiguration of the ball and rod mills in combination with the replacement of our old float cells will eliminate both the throughput issues we faced to-date and increase recovery, with projected recoveries going from 81% to 88%. In essence, we are virtually building a new expanded concentrator in 18 months while not affecting copper production.

We expect to have a new large diameter auto-compute float cell operating in a less than month. This float cell alone should increase recovery by 2% in the coming months. As well, we are aggressively undertaking the rehabilitation of our SX-EW plant, which will add to our copper production in 2007.

In an effort to deal with truck tire shortages and consequential equipment shortages, which we foresee lasting well into the 2008 year, we are redesigning our pit development and beginning to evaluate the resurrection of our in-pit crusher and conveyor system, which we believe will reduce the need for three hauling trucks in the future.

Our detail to capital expenditure and operating cost control facilitated through detailed mine planning and engineering will be critical in the coming months. Our $2 million drilling program is continuing to encounter copper metallization that will further expand our already considerable reserves, and once this information is put into our minds and we expect to have a new update reserve and mine plan by yearend.

In terms of developed opportunities, we are pushing forward on all fronts in the Prosperity project. We are in Phase I of our engineering study on updating the feasibility study, which will be completed shortly. As a comment, we have reduced the size of the concentrated footprint by 50%, with our first cut at redesign.

This footprint reduction will have a significant impact on capital requirements from the amount of concrete used in the foundation to the size of the building we require. We also know that going to a single-line grinding circuit will retreat other capital costs as well.

So we are very optimistic on where we will end up with the Prosperity design and look forward to the updated feasibility study. Preliminary results of this study appear to us to be very encouraging in terms of capital costs, especially considering where the cost of inputs have gone over the past year or so.

The broader investment community has not recognized the significance of the results of Prosperity. And when compared to undeveloped copper/gold deposits in third world countries with all the intended risks of nationalization, community on risk, changing tax regimes, there really is no comparison.

We have security of tenure. Our asset is in the mining-friendly jurisdiction. We have rule of law through a due process. We know what the rules are. We are certain. We have access to power, we have good climate, we have community support, and there are very few ore bodies in the world the size of Prosperity.

Few companies like [Nova] can attest to having these ingredients. We believe that as this story unfolds, Prosperity will be recognized as a very significant asset in Taseko's portfolio.

I would like to now turn the meeting over to John McManus to briefly discuss a few important operational issues that we've had. Then, Jeffrey can speak about the financials, And then, we will open it up for questions. John?

Sure. Thanks, Russ. As you mentioned in your opening statement, the Gibraltar staff are continuing to focus on three key operational issues at the mine site in order to improve our overall performance. Again, the areas of focus are copper recovery, molybdenum recovery, and mill throughput or tons of ore milled in a specified time.

While we are beginning to see real results from the initiatives, which we've undertaken to address these three areas, we were hit with a series of relatively insignificant mechanical issues in the concentrator, during the second quarter, which resulted in overall disappointing result for copper produced.

The budgeted mill availability for the quarter was 96.5%. Our actual performance during the quarter was 92.4% in January, 86.9% in February, and 79.4% in March. These availability figures are based on awaited availability of the three individual grinding circuits as well as the availability of the concentrator as a whole.

The total for the period was 87.2% mill availability or 90% of the budgeted availability. This does not explain the entire shortfall. In reality, the type of failures that we had during the latter part of the quarter, which were many relatively short duration but sudden shutdown type failures, caused much more operational destruction than just lost operating time.

Each unplanned shutdown of this type is very hard on the equipment. It's also hard on the operating staff and maintenance staff. So the whole reliability issue of up in town was really affected as more than just the availability.

The individual failures that we experienced during the quarter range from ceased [tenured] bearings, premature rod mill minor failures, failed loop pumps with failed warning systems that didn't tell us that the loop pumps had failed, failed mill clutches, failed mill pinion gears, filled tailings pumps or pipes and pump boxes and drawing that type to some other ones which were, we had two complete power outages during the quarter caused by very large birds arching the incoming power lines.

In the first bird incident, concentrator was completely shutdown for 24 hours and the tailing find sanded out in sub-zero weather before the power could be restored to the sites of extremely disruptive type of problem that we had. So while we are continuing to take action on individual incidents as like those that we had in the second quarter and as a result, we changed the power-line configuration. We have also setout a new goal of measuring and understanding what affects mill in the chemical reliability. So the systems were more accurate when we detect these types of problems before they occur and we can affect the repairs on a time basis rather than fighting fires.

We have engaged a large international engineering firm to audit our mill maintenance planning and maintenance practices. And we are currently initiating action on a couple of early findings but we are early in this program. While the other key operating areas of copper and molybdenum recovery did show improvement. We believe that the disruptive effect on the poor mill reliability also dragged on those results of recovery, the lower the otherwise would have been.

So, in addition to the maintenance strategy review, we are carrying out other initiatives to increase throughput recovery. We did experience a hardness increase in the ore mine from the eastern Pollyanna pit during the quarter. And we have increased our powered factor by about 40% in the pit in order to reduce the ore size there before it gets to the crusher to increase the mill throughput.

Also the new expert grinding system, which was installed during the quarter, well, actually got of and running during the quarter. Never really got an opportunity to perform because we were working so hard just to get the place to run, but it is giving us a short promising ability to better control the variability of the grind in the mill and that gives us the ability to improve both mill and flotation performance.

The 160 cubic meter additional rocket floatation cell is nearing completion of construction. We hope to be -- well, we will be by the end of May putting material to that cell. So we should be seeing positive copper recoveries results before the end of this quarter.

Encouragingly, even at the difficulties that we encountered during the last February and March with the mill, and in face of the increased input cost such as steel prices and the multiplying unit cost factors of fixing the mill rather than running it, our site operating expenditures were essentially on budget for the quarter. Because the copper production was lower, site unit cost was obviously higher than we wanted. But however, key performance indicator such as cost return mine at $1.01 per ton were kept in line with expectations. As savings that we achieved through improved poly through designs, were offset by higher prices for fuel, lubricants, tires, steel and so on.

Also in our costing structure, a current onside cost include higher than deposit average stripping of 2.8 to 1 versus our life average of 1.8 to 1. So we are investing in the future with our stripping or taking us on operating cost. Also at this time, we are taking reclamation cost as an operating cost and we have not included an in-process middle inventory valuation in our operating cost.

In the longer term mill expansion, as we mentioned, is on track for being operational by the fall of 2007. The work which is going to happen when we do the mill expansion is going to greatly enhance the reliability of the concentrator to get rid of some of these niggling problems that we have been having. And it's also going to improve metallurgical and operating cost performance. as we have discussed previously.

Rehabilitation of the SX-EW plant, which we are moving ahead as quickly as we can, has begun and we've had a full assessment of the facility itself, the plant, with no major surprises. It was put away in good shape and we should be able to bring it up fairly quickly. We have oxidized material ready to go for at least one season of leaching. We will start that when we are sure the plant is ready to receive the leaching. In the meantime, we are evaluating numerous other oxidized sources on the property in order to pick the best option for the long-term operation of SX-EW solvent extraction electrowinning facility.

Our definition drilling program is approximately 50% complete at this time. We have two drills on the site. We are entering results into the geological model as we ago and our intention is be able to run new pit optimizations and new mine plant by the end of this year and update our reserves. The Environmental Assessment on Prosperity copper-gold project is a full swing. We have had -- we have engaged all levels of government, we've got field team support to perform data completion collection on fisheries wild lake and traditional used areas. The environmental assessment is to be substantially completed by April 2007 and then we go into the review process.

Parallel with the Environmental Assessment of the Prosperity, we are running a full feasibility study. We are starting now with taking a look at the mill as you said in the [Tailings] facility. We are going to review an update on the work which is done previously on project and in parallel with that, we are preparing to begin the mine permitting process with the Prevention Ministry of Energy Mining and Controlling Resources.

That said, we also like to announce that Scott Jones has joined Taseko as General Manager of Project Development and Brian [Davisson] has taken on the job of Director of Public Affairs. These individuals are both pros and they are going to be extremely effective in assisting us and ensuring that this prosperity resource is brought into production in timely and sustainable fashion. I think that's about it from my end, Russ.

So I will hand it back to you.

Okay. Thanks John. Jeffrey?

Thank you, Russ and John, and good morning. I am going to cut through a few of the highlights of the Taseko financial results. John and Russell have been mentioning some of the aspects already and certainly more of the details are contained in our public filings under the MDA Financial Statements we have filed last year.

But I thought I would touch on few other key things that we should focus on that are strong and some of the things that have changed during the quarter that we should be cognizant of.

Number one, the key thing I always like to start of with and is in the top of the balance sheet. So we'll start, there is cash is up 44% or 11.2 million from 25.4 million to 36.6 million in the quarter, that also includes $5 billion that is sitting in restrictive cash below the current assets. That money is continued to be used for payments to Ledcor in the normal course of bills that are paid for operations in the quarter. So, even though, it's in the restricted category and below current assets, it's a very active normal course activity.

I am pleased to announce that in April, subsequent to the quarter-end, the lease is on one shovel and five trucks amounting to US 12.5 million or Canadian 15.4 million. It was paid out in full with existing cash resources on hand. The reasons for doing this are several fold, one, we saved interest to the corporation of 7% on these leases, amounting to on a day forward basis $1 million per year. In addition, Ledcor is part of our initiation fee when we started the process of having a joint venture with them in the kick of relating to the restart, had a guarantee fee which will be now avoided, which amounted to 0.8 million per year. So the total savings on an annual basis from this payment out of releases is $1.8 million per year.

And actually we now don't have the opportunity cost of cash in the bank, but in Canada that opportunity cost is running at about 3%. Interest rates are a lot lower in Canada than they are in the US.

And another aspect finally on that is that we had US dollars on hand from the sales of copper. These leases were denominated US dollars so we were able to pay that off, a natural hedge in that. On a cash basis going forward, as of today, we have $28.4 million on hand including the 5 million restricted. That's having, despite having been pay out those capital leases. So we moved from $36 million at the end of the quarter, we paid out the leases, we have had copper sales and today I am proud to announce that we still have $28.4 million on hand.

In addition, we have been in dialogue with several senior financial institutions and we are very close to finalizing a $25 million US line of credit at LIBOR plus 1.75%. This money would be a reserve or a line available for the continued expansion as John has mentioned. Future work at prosperity, expenditures on site and potential acquisitions to add to the value of Taseko.

Another point I'll like to raise is as well as part of this line of credit we do, we had our equipment assessed as to its value. And the assessments by the independent people were that the equipment, five trucks and one shovel are worth as much as we paid for it dating back a couple of years, and that is simply the price escalation of these types of equipment.

So if you look at the balance sheet, what you see there is an operating company that has a mine and mill and full operations, and in the third quarter, not yet reported in the financials, no debt whatsoever, 28.4 million cash, and soon to have a line of credit of 25 million; a very strong position for accretive activities moving forward.

Going in now to some of the more particulars, the concentrate inventory is relatively static in the period, down 4% from last quarter. Most of their concentrate was held at the port in Vancouver or at the rail sightings for shipments to back Eastern Canada. This concentrate was shipped right after the quarter end. It did cause deferred revenue, which you will see in the liability section of the financial statement under current liabilities, to rise from 4.9 million to 8.9 million in the quarter. That revenue will be booked in the quarter three along with the cost of sales related to it.

Our most recent sale, as Russell mentioned -- you know, at the time we made the sale, we were all very proud of it. We sold 4 million pounds at $3.40 US. Certainly, at that time we were very proud. But looking today's price, one has to wonder. But certainly that does create additional moneys to our treasury.

Slipping down further into the balance sheet, there is a convertible debenture right near the last part of the liability section. It shows its 12.4 million, but that's simply an accounting process where we accrete that up to its base value. It amounts to $17 million. The debenture is currently held by Breakwater, and it is convertible to common shares at $4.64; i.e., into 3.66 million.

Certainly with their current price scenario at Taseko in the marketplace that has come into play. The Company has examined some offsets against that, and that relates to the purchase from Boliden originally in July of 1999 that we may not, in fact, redeem 100% of that because of certain latent tax aspects, some asset purchased items, reps and warranties and the like that were provided by Boliden, which the Company has currently its Legal Counsel examine it. The reason being is that before we finally settle the last remaining item with Boliden, we are making sure that everything was complied with as to the contract.

This is the seventh year of that debenture. It is a non-interest bearing debenture. There is no interest payable on it. It is almost like equity in nature. We can convert it at our option at market price, so that's why it's in place. So if the stock was over $4.64; i.e., the strike price, the Company could move to convert it into shares. This July 21st, that conversion price will escalate by $0.25 as it does each year to $4.89, in which case it will be convertible to a lesser number of shares; i.e., 3.5 million shares.

I'd like to move off the balance which I might comment is very strong, as I mentioned, and move to the statement of operations. The operating profit has stabilized. It is down from 8.1 million to 7.4 million in the quarter. But some of that is hidden in the fact of our Glencore price participation dispute that we're currently going under, and that is, in the quarter, 1.6 million US or 1.8 million Canadian was charged against operations due to the price participation. And this has escalated, and certainly, much more extreme given the current price scenario with copper.

So operating profit could have very well been $9 million, but we've taken the conservative route and booked it as an expense, even though our lawyers have a certain position that is very positive on this case. So we neither have the cash in hand for the quarter of $1.6 million US and we have booked it as an expense in the quarter. So the statements you see on the statement of operations are the worst case scenario for the price participation if the Company was to lose 100% under the arbitration.

The arbitration is currently slated to occur on June 10. We would have a settlement thereafter. We are in dialogue with Glencore. As you get near to a case or arbitration, naturally both sides are filling out each other. There is a need by Glencore to try to secure concentrate sales and supply in the future. And similarly, we have expressed them our views on the case, and they are very strong views indeed.

So currently, project to-date or contract to-date, there is 5 million US that is held back that would otherwise come in as cash in the third or fourth quarter, and as well would go into profit or net earnings in that period. This price participation is serious. The current amount is $0.28 per pound for every pound we sell. We believe that it was not fitting in the contract. We have a very strong list of people that will attend the arbitration, and our case is very well stated -- we believe very strong. However, we will be at the mercy of the person on the other side. However, we are very confident on that aspect.

Moving down into the expense section, that has been relatively static. It is a little bit up, 1.4 million to 1.9 in the summation of the expenses. Principally, exploration has stepped up a little bit by about 200,000 in the quarter. G&A is up 400,000 and it's related to the TSX filing, compiling the documents, the filing fees, the lawyers, et cetera. We've got some increased activity, and then the legal cost related to the arbitration, which we have taken very seriously here.

I will move on to taxes. We have that line appearing now below the earnings. In the first half of the year, we earned -- Taseko earned $12 million. Certainly, for the second half of the year as prices continue, we expect to see larger numbers. And so tax has become a very serious consideration. At this point, we do not believe we are going to pay taxes. However, we have put a small net amount, or smaller I will say. It's still a significant -- in actuality, it's 2.4 million net as a charge.

And the principal reason is we are under an expansion of $62 million. We are also doing the SXEW for 3 million. We have other activities pretty significant and other things underway. But most of those are to occur in 2007, 2008 predominantly, in which case, there is a potential that we may have to pay taxes. But we would get the taxes back, because we would make the expense deductions in 2007. We'd take the loss and carry it back, which you are allowed to do for three years and claim back the taxes.

We also have other planning methods that are underway currently to ensure that we do not pay taxes. Now that charge that is sitting on the financial statement, we have not paid any taxes. We intend not to pay any taxes, but we have taken again the considerate route and put it under current scenario under the -- what's currently known and given that we have not yet expended that money on the expansion, we would potentially have to pay up to $2.4 million.

Moving to the statement of cash flows, I think we have touched on the majority of the items. One of the ones that I did not mention is common shares issued for cash, netted issue cost in the quarter once and options were exercised generating $5 million. That compares to last quarter of 2.9. And overall as I mentioned, you look to the bottom of the statement of cash flows, $11.2 million were generated in the quarter.

Next, I would like to last touch on hedging. Taseko is 100% unhedged. I just wanted to clarify that. We have not hedged forward or otherwise any of our production. We do continue to examine it weekly. We have pools coming in from financial institutions, traders, Glencore and others with respect to pricing of those forwards and futures. We have looked at floors, ceilings, protected floors, all kinds of avenues.

There is a cost to any one of those things. One is you potentially forego future price depreciation in copper. Number two, if you go to a straight naked floor and a naked floor is whereby you guarantee that you will never sell copper below a certain price or certainly for the period of the term of the forwards, and let's say it's two or three years, you do have to pay a price for that. And you have to take the risk of putting up the cash today. We are in a very good position and certainly get the lines of credits to do that.

And then finally, if you do go to naked futures, you have the potential for margin call. For example, had you sold futures at $2.75 when you were very pleased with those numbers and certainly a lot of people were, under the current price scenario, you would have had calls, cash margin requirement. At that time that may have been difficult for Taseko. It certainly would have taken its treasury down. We may not have paid the leases down.

I think we're moving towards a very strong position in the cash treasury. We can now make those decisions and secure our forwards and futures, if we decide to do it. But currently no decision has been made. And we have very senior people on that decision committee. And that's my report.

Russell, thank you very much for the time.

Thanks, Jeffrey and John. Now, we'd like to open the call up to for questions from the listening public. Operator?

Yes sir. [OPERATOR INSTRUCTIONS]

Your first question comes from the line of Tom Bishop of EU Research. Please proceed.

That's BI Research. How are you doing, guys?

Good John.

Let's see tires. That seems to be a big issue. What keeps it from getting fixed? I mean why is it shortage going to last till 2008? At one point, I thought I had heard it will get better at the end of this year?

Yes, Tom, it's John here. What we are being told by the manufacturers and the suppliers is that there is a number of things, which control it. One, it takes quite a bit of capital to build additional capacity of the tire class. There is also the inputs inter building the tires there is constraints on how much that can be increased in capacity.

And those inputs are rubber, actual natural rubber, tire black steel and petroleum that goes in to making the tire. So there is some caution from the tire manufacturers of investing a lot into increasing their capacity right now to worry about how long is this increase in tire requirement is going to be.

But you -- did you say you have three trucks idle or two or -- I mean...

We've got, we've got -- actually we're back to one idle right now. And we should have the adopt by the end of the month.

And that's because you are getting some tires?

That's right. We have a contract with the supplier. And they are fulfilling their requirement. The contract wasn't for all of our requirements but there is a full in their side we're getting better life out our tires. The guys who are operating in order to preserve the life of the tires get more tons moved. And we've also secured some tires through another manufacturer so its coming together. We will be able to keep our feet up and running once we get them out of hand.

Okay. Now I heard a lot of you know problems at the mill and the trucks, did the trucks hurt the costs per pound, was that part of, you know, kind of, the underproduction and so forth, it was a repair issue or?

No.

What I am really getting at is that, you know, the forecast for this quarter for operating cost was $0.81 originally, and they came in it $1.7 a pound and that's you know.

Yes.

Can you fill in that gap, you know, like repairs was $0.10 and tires were, yes, I don't know how you can fill it in but if you can get a some way between 81, say, I know some one with the level of production, the gap from 81 to $1.7 right, I think, we'd all appreciate it?

It's all about the level of production, Tom. It's was -- our expenditures were essentially on what we intend it to do.

Even with the stripping?

Even with the stripping, yes.

So it was simply having less pounds to diversify?

Right.

That's exactly right. And...

There is a fair amount of leverage in this situation, I guess?

Yes. So you know our focus on getting the mill through part which is, which is what hurt us in this quarter, back to where it should be, where we expect it to be is what's getting our cost for term-by-term.

I don't see you projecting $0.80 to $0.81 so any more even going forward?

No. We've we have taken another look with the experience that we've had with that mill and the condition of it. And that our expectation of what we can get through on throughput and produce pounds of Copper. We produced that some and we've kept our expenditures essentially the same, which is what we experience this quarter. So you will see a range there from dollar-to-dollar 15 and that, again, has been controlled. Mostly by Copper production there are increased input cost in tires and steel labor, everything cost more than it did when we then we started this year. But we're doing other things to offset that, sort of, balances reserve expenditures will be above as expected.

And I just do another one here before I get off. The SAG mill, you're hoping to deliver that in about -- well, how does the grinding, the SAG mill, the concentrator is that all $162 million project or did you say the grinding motor was separate or--?

Not. No, its all $62 million what that gives us is a larger SAG mill 34 foot diameter. And complete replacement of the floatation section, copper floatation. The SAG mill, the breakdown for that is about, I think, its about two-thirds of the cost of the total productions, 48 million. The rest of it is the floatation circuit, plus we have got to do something with how you move material around with in the mill, compared to bills and piping pumps things like that to make sure it goes to the right place at the right time.

And the concentrator is all that or how does that relate to the floatation source?

The concentrator is everything from the crusher, the main crusher through secondary crusher, the grinding, floatation, filtered presses through to the dryer. Concentrator is every thing from raw or from the pit to concentrate. That everything includes.

But I call the mill?

Yes. We call the mill, I call the concentrator the same thing. Some people even call it a plant but we'll keep to just two.

And you except to have that up, operating with out any interruption some how?

No major -- yes, no major up -- no major interruptions there will some of course, we can, the mill itself those SAG mill, the grinding mill 34 feet diameter. We will be in a building, which is self contained away from the current mill.

Say 34, or 24?

34 foot.

But there will be in a separate building?

They will be in a separate building, it will set up our distribution, our material flow so that when we've got the mill up and ready to go, we switch over to it and then it switches back. So we're looking at maybe a week to 10 days for the switch over when the mill comes up, that we won't be producing. The floatation banks, we can change them bank-by-bank, so we don't expect to take the mill down at all other than, you know, a day or two for transition here and there.

You had 4 million that you said that you just saw the 340, was that included in the cash that you mentioned, Jeff.

That is not included in the quarterly cash, that 90% of that amount was included in the 28.4 million we stand to-date. We get advance within 5 days of sale, cash equal to 90% of the value. The 10% is on settlement because there is over and under as on the copper grade, the total pounds, the dryness etceteras. Maybe, another question out there?

There are no more questions in queue. [OPERATOR INSTRUCTIONS]

Anybody else there? Okay, operator.

I apologize, sir. We're trying to structure the list of questioners. So just give us a moment. I apologize.

Okay. Okay, present.

Your next question comes from the line of [Jeff Nee] of Merrill Lynch.

Hi. My question is hostage situation of the Harmony Gold project?

Well, as it stands right now, the Harmony Gold project is on the back burner, we have not, we've not done any work with it rather than, you know how we did in our inventory, there is, there is certainly aberrational issues on the Queen Charlotte Islands right now, that prevent the government as working in what they call a new relationship and try and define some of these areas that have been rather contentious in the past.

And there is, right now there is and that question someone surge me up there with respect to where that ultimately may end up. So we haven't done anything with that and certainly not one of the focuses of management at this point.

So what's your expectation on the progress going-forward?

That remains to be seen in terms of what the provincial government will do with respect to discussions with the land resource planning system that they are in discussions with the communities in the, on the Queen Charlotte Islands. Once we know that that we can decide what our passport will be. But when is that going to be culminated between the provisional government and the native bands up there that's, I guess your guess is as good as mine, I can't answer that right now.

Thank you.

There are no more questions at this time.

Okay Operator. Well, thanks very much for everybody listening in. We'll speak to you next quarter. Good bye.

Thank you.

This concludes today's presentation. You may now disconnect.