Taseko Mines Ltd (TGB) 2011 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the Taseko Mines Q3 earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Taseko Mines. You may begin.

Good morning, ladies and gentlemen, and welcome to Taseko Mines 2011 third quarter results conference call. With me today is Russ Hallbauer, President and CEO of Taseko, Peter Mitchell, Taseko's Chief Financial Officer, and John McManus, Senior Vice President of Operations. After opening remarks by management, in which we will review business and operational results we will open the phone lines to analysts and investors for a question-and-answer session. I would 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 for more information. And I'll now turn the call over to Russ for his remarks. Russ?

Thank you, Ainsley. Good morning everyone. Thank you for joining us today to discuss our third quarter results and the ongoing status of Company initiatives. Operating profit for the quarter was CAD63.6 million in comparison to CAD8.2 million in the third quarter of 2010. Operating profit included CAD25.2 million in gross profit along with CAD48.3 million in hedging gains. Net operating costs of production declined throughout the quarter from $1.91 US per pound in July to $1.36 US per pound in September as a result of cost control initiatives and increased Moly recoveries. Adjusted net earning were affected by a number of items ranging from a very high tax rate for the quarter, derivative volatility, currency and finance expenses, to name but a few. Peter will discuss those in more details during his presentation. Our net earnings of CAD30 million or CAD0.15 per share, compared favorably to the CAD700,000 in net earnings in the comparable period last year.

The GDP3 plan is on budget and on time with a 60% of the dollars already committed. We see little chance of cost escalation or any threat to an audit's even completion by December of next year. We estimate that by the end of the year, we will have spent approximately CAD60 million of cash. Stepping ahead, it appears evident that the market does not really appreciate the Company's unrelenting adherence to maintaining capital outlays and budget time constraints on our capital projects. Reports indicate the new copper projects coming on-stream at CAD25,000 to CAD30,000 per tonne of installed capacity -- copper capacity. If we look back at what we accomplished it on GDP3 we will be -- or GDP2, we will be building GDP3 for approximately CAD12,500 per ton of installed capacity, less than half of what is going on in the rest of the world.

The only real issue we have had in the past four years, was a slight overrun of the direct feed system, and that was not mostly a result of scope changes after what -- we were well into the project. So we believe we are spending our shareholders cash wisely and productively. Our joint venture partners release numbers yesterday that indicated the GDP capital would approach CAD363 million, up from the CAD325 million we have estimated. We need to clarify that situation. The extra CAD38 million that our partners indicated would be the result of GDP spending our sustaining capital dollars, not tied to GDP3 expansion, but are for items such as a new truck shop to be built sometime in the future, the new Moly plant, and a new employee change house. We are not sure at this juncture why they announced that number. We will have discussions with them later about that.

As is evident from our operating cost reduction over the quarter, a reduction from a $1.91/lb to $1.36/lb site staff is concentrating on cost containment, which will only improve as we continue to increase mill throughput. Generally speaking, we are very happy with the progress at our operations. We fully expect to have our concentrator debugged by year-end. We are sustaining -- we are achieving sustained throughput levels above 55,000 tons per day, as we modified feed conditions, work on lifter redesign, panel discharge great redesign, power feed conditions, and a multitude of other engineering initiatives to increase throughput. Correspondingly, in the pit, we've identified six different ore domains with very different grindability indices. A different ore feed with affect the operating parameters of the SAG no by over 20%.

As we are now in the process of engineering bench or release design, taking into consideration these different ore types, we anticipate a steadily improving rate of 55,000 tonnes per year, per day, by year-end. Just to give you some insight, the mill in the past 12 days has averaged over 60,000 tonnes per day. Looking back, for the first six months of this year, we averaged 42,000 tonnes per day for the concentrator. July we moved that to 48,000. Now we are over 50,000, with sustained 55,000 tonnes per day in sight. As I said, our partners are on site and have approved their participation in GDP3, and we are on-time and on budget.

Looking at our expiration projects, we completed our Aley drill program, and we will be moving into feasibility study once we complete the next stages of the met work in the coming months. We envision a operation somewhere between 8 million kg to 10 million kg of Ferroniobium a year, as our ultimate plan, and the met work performs to our expectations.

The Federal Ministry of environment accepted our project description on Prosperity, and answered us into the federal review with a fixed timeline, so we will be working with appropriate agencies to advance Prosperity over the coming months. For the past few days, a prominent First Nation leader in the community of Williams Lake has indicated it is time to begin discussions with the Company, have forward on this new environmental review. We believe that this is a true sign of leadership in the community, and we look forward to engagement with First Nation in the weeks ahead.

I would now like to turn the call over to Peter to discuss the financials aspects of this quarter. Peter?

Thanks, Russ. Revenue for the third quarter of 2011 was CAD84.2 million, more than double the same quarter of 2010 at CAD37.5 million. This resulted from increased shipments in the 2011 quarter, effectively reducing concentrate inventories to in-transit amounts only. Realized copper price per pound was similar to Q3 2011 at CAD3.73 per pound as the levels in Q3 2010. Moly sales in the third quarter totaled CAD3.2 million, which is comparable to Q2 2010. On year-to-date basis, Moly sales were CAD10.9 million, which represents a 15% increase over the comparable period last year. Cost of sales increased from CAD21.3 million in the third quarter, 2010, to CAD59 million in the third quarter of 2011, as a result of the 152% increase in copper sales volume in the quarter.

The third quarter 2011 gross margin decline reflects higher direct mining costs. G&A costs were CAD4.2 million in the third quarter, up from CAD3.2 million in 2010 quarter, due to increased engineering personnel supporting the Company's growth projects. Exploration and valuation expense up almost CAD6 million for the third quarter, relates to exploration activities at the Aley project. Other operating income in the third quarter of 2011 was CAD42.6 million, which primarily results from unrealized gains on the derivatives used in our copper price protection program. These derivatives are mark-to-market at quarter end, and move significantly into the money at this quarter. Also included in this net amount is CAD4 million of consulting expenses for the Gibraltar optimization.

Finance expense at CAD13.1 million for the third quarter, reflects the bond interest as well as realized losses on US dollar money market investments, as a result of net changes in prevailing exchange rates since the investments were placed. The income tax expense for the third quarter of CAD18.7 million reflects an effective tax rate of 38% and includes the effect of permanent differences, including share-based compensation and deferred tax adjustments related to BC mineral tax. Adjusting after-tax earnings for realized gains losses on derivatives, the joint venture transaction, foreign currency translations, and other gains and losses, provides adjusted net earnings of CAD4.3 million for Q3 2011, as compared to CAD6.3 million for the same quarter last year.

The year-to-date adjusted net earnings to September 30 are CAD14.1 million, as compared to CAD20.3 million year-to-date last year. This corresponds to adjusted earnings per share for the third quarter of CAD0.02 and CAD0.07 year-to-date versus CAD0.03 for last year's third quarter and CAD0.11 year-to-date to September 30, 2010. Cash and working capital were CAD268.1 million and CAD427.3 million respectively, at the end of Q3 2011. In addition to this cash, our money market investments beyond three months maturity are included in marketable securities which totaled CAD101 million at September 30.

In conclusion, from a financial perspective, the third quarter represented a period of very high volatility and financial and commodity markets, which provided validation for Taseko's copper hedging program, as evidence by our CAD48 million gain on copper derivatives in the quarter. We will continue to manage the Company, anticipating that volatility will be a constant by naming our strong cash position and prudently extending our copper price protection program into 2013 and beyond as conditions permit. Russ?

Thank you very much, Peter. Operator, we can now open the phone lines for questions.

(Operator Instructions)

First question from Orest Wowkodaw from Canaccord.

I was wondering -- obviously, the ramp up this year has been a little bit slower than anticipated. Russ, can you give us an idea -- you said you are at 60,000 tons in the last 12 days. But how much copper was actually produced in October?

What do we got there, John?

We did --

7 some million?

About 7 million, yes.

7.2 or something?

7.2. And the fourth quarter, then -- should we anticipate something in the -- call it 23 million-pound range? 22, 23?

What have we got for grade this quarter, John? Has it come up a little bit? So much is dependent on grade and recovery, and a number of those other issues, as you well know, Orest. Certainly if the tonnage comes up, and the grade comes up, and the recovery comes up, then we're going to produce more. But if you have a fluctuation in one or two of those -- so, I really have trouble trying to state what we think could happen, because as soon as we do that, we don't make it and everybody dumps on us.

Right.

So, we don't see -- we're probably going to be in that 21, 22 million, 23 million-pound range, right John.

That's right, Russ.

The grade is pretty steady for the rest of the quarter. We are already halfway through it. What it is going to depend on is where we get with throughput and recoveries; and we're still in the experimental stage, ramp-up on the SAG mill.

So we've come a long way. It's a lot better. We are doing, like you said, 60,000 tons a day for the last 10 days; so, we're getting the recoveries that we expected coming up.

And should we expect a step function in production in Q1 next year? Or do you think it will take longer to get the throughput out?

We've got a gradual increase in our plans, internally, for next year, but it's from 53,000, up to 55,000 over the year.

Okay.

We're seeing it on a steady basis, Orest; and like I said, now that we've only been running this as a SAG mill only since June. So seeing how the ore coming from the pit reacts inside the SAG mill, taking that information back to the pit, adjusting our blasting practices, adjusting minor tweaks in the mill. It's all fine tuning now. We know how to run the mill, but we are fine tuning, getting that extra (inaudible).

What grade does the mine plan call for in 2012?

It's at 0.31.

Next question from Peter Campbell of Jennings Capital

Just a few questions here.

Can I get a comment on how the new SAG mill front-end feet system is performing? Is it living up to your expectation?

Absolutely. It is fantastic.

Some of the stuff when we are getting 60,000 tons a day on a steady basis, that is the material that we are having a real hard time with. It's got a lot of fines in it, and when we have the secondary crushers and screen decks and 18 belts and all of these different things to feed that material into the mill, we couldn't get it to the mill in time, so we were stuck at 40,000 tons, 45,000 tons a day. Now that stuff just goes just shooting right through to the SAG mill. SAG mill loves it and shoots it right on over to the grinding circuit

That alone tells us the thing is working pretty well. We are looking to see a lot of the benefit from it, too, again in the Winter -- much, much simpler system. This run -- there's been a few little adjustments issues, minors, but basically it has come up and run perfectly.

Thank you very much. That's good to hear. Couple of financial questions, now, if I may.

I read now that Sojitz is now going to pay up front for their 25% share of the CapEx expansion for GDP3. Is that not a change from the way it was expressed before, where Taseko was going to pay for it, and then basically recoup CapEx from cash flow?

No. I mean, we did our bond, first of all, from our perspective, Peter. We did our capital rate, the bonds we did back in April, specifically in anticipation. So, not out of cash flow, out of an actual fundraising.

As we announced at the time, our partner was working to catch up with us, from a diligence perspective, on the project itself; and, really, the announcement this week from Sojitz, from Caribou, that Russ mentioned in his commentary, is they are coming alongside. So, what will embark on now is a monthly cash calling process, where we will continue to fund our 75%. They will fund their 25% against these cash calls and the money that we are spending on a monthly basis. There will be a one-time cash-out over the next few weeks now that Caribou is alongside for them to catch up with us in terms of contributing their 25% on what we've spent cumulatively so far.

Okay. That's good. That clarifies that.

Peter, while I have you on the line, here, just wanted to make sure I understood. The CAD4.5 million realized loss on financial instruments was from a US dollar hedge. Is that correct?

It is not a US dollar hedge. It is actually money that we left in US dollars from the financing done in April, and it's put in something called a dual currency note, which is left in US dollars. We generate somewhere between a 5% and an 8% rate of return, and there is an option condition attached to it, as well. And with the significant weakening of the Canadian dollar, it went about that option level, so that is what that realized loss is associated with. So it really isn't hedging. It's strictly a US dollar money market investment.

Okay, now I understand, because I couldn't understand where that realized loss came from here.

And then one final question, before I pass it off here. There was quite a bit higher exploration cost, mostly attributed to the work being done on the Aley. Is that going to continue at the same rate for the next couple of quarters, or is that going to fall off a little bit?

No, Peter, that was the Summer exploration season. I think we spent about CAD12 million on that. The drills are out at the area. Now we do engineering work, and reduce the data from that program, and go into feasibility study this year. For next year, we've got a similar amount budgeted, but it depends on what we find out during this feasibility study. But that is a lumpy spent. It happens during the Summer.

Yes, I understand. So basically I can infer from this, you have a budget for, let's say, CAD12 million on Aley next year, but it may not all get spent?

Yes, we're still working on the budget. That hasn't finalized.

Okay, thank you very much. That's all that I have.

If we think we've got a mine, we will be spending. ( laughter)

Well, let's hope that you do.

Yes, We hope, too.

Next question, Steve Parsons, National Bank

A couple of questions for you.

To follow up on your comment that there's six different types of ore domains in the pit, each of which have different hardness and have to be treated differently. Is that something that is sort of new to you? And are you seeing an increase in the number of domains in the pit, relative to what there was historically? And is this going to present complications for blending, and more blending requirements, and stuff like that? If you could you speak to that?

Sorry, it is only pertaining to how the rock reacts in the SAG mill. The domains, as far as how we react in the flotation -- there are no changes there. The metallurgy of Gibraltar is very well known. It is -- before, it was ball metal circuit, and now that we are actually running as a SAG mill you have to find out what happens. It actually presents us an opportunity. We can, like I said earlier, we can tweak now, we can change our blasting practices, depending on what the rock type is. We can blend to get the maximum out of the mill.

Should we expect higher material handling, or blending costs, to deal with this?

No, no. We've got a blending strategy which we've been using for some time. And we've got a big stockpile area next to the primary crusher, and we keep an old 2300 shovel in there; so it's not an increased cost, it's a -- this is actually an opportunity for us with SAG mill.

Actually, Steve, we did a lot of this kind of work down in Antamina years ago, when I was working for Tech. And you actually -- if the concentrator starts to understand the predictability of the feed that it is getting, it is actually cost improvement initiative, because the reaction time in terms of having the right reagents, the right collectors, and all that kind of stuff, really keeps your recovery consistent; so suddenly the ore feed doesn't change and drop, and then everybody reacts, and you lose recovery. So, we think this is going to be a big opportunity for us, like John said.

Okay. So, maybe some more on optimization work.

The consulting services that will be incurred in second half of this year, CAD8 million -- it's a huge number to spend on consulting. Can you provide some color on the activities being undertaken? Where the consultants are focusing, and perhaps to what extent you think that cost improvements will be sticky on a go-forward basis?

It's John's project. John? So, I helped create it. John and Dave are undertaking it. So go ahead.

Okay, well it is a big amount to spend, but we see the benefits coming back over 20 years. And it's across the board. It's all of our management systems at the mine, right from the mine operations through maintenance, mill operations, maintenance, our warehousing, and purchasing activities, supervision -- just getting a solid operating plan in place, so everybody can see what it is that we are doing and see what we are doing next. If there's something which isn't happening the way it's supposed to, it gives them the tools to analyze and find out what is causing the under performance and move it forward.

The CAD8 million -- we've got, I believe, 25 people on site, from this consulting group for six months. Now they're not doing anything that we don't already know how to do; but what they are helping us do, is implement it, and get all of these management systems out to the operators through supervision.

One, everybody is singing off the same song sheet and moving forward together. We could have accomplished this ourselves, but it would've taken a lot longer. So we brought these guys in to really speed up the process; and really with six months of focus on this thing, when we reach the end of it -- and we don't actually reach an end point, but as it winds down -- that thing is implemented. People know what it is that is expected of them.

John, do you feel that you're going to get lower cash cost than expected as a result of this, or just the cash cost that you expect to get to, but you'll do it sooner?

We will get to the cash cost that we expected, and we'll get there a lot sooner.

Got it. Last question for me.

On Prosperity, the government indicated that they will use where appropriate, some of the old work that came out of the old panel report. Does that include the old panel hearings as well? Does it include information from those?

Well, there's a lot of it that we are not entirely sure how it's going to play out, yet. We only found out Monday that was going to be a panel. We are working with CF to understand this, and they've got to come up with terms of reference. But really what they're talking about is in the individual aspects of the project, things like, if something didn't change, then it doesn't have to be re-examined.

For instance, the access roads and concentrate transportation plans are identical, so there is no need for a new panel to review that. Power line location, power (inaudible) -- there is no change, no need to review. So, that is what we are working with CF on to understand this.

Right.

There still are going to be public hearings, but the terms of reference --

Sorry, When are the terms of reference due to come out?

We are working through that.

That's it for me thanks.

We think sometime in, possibly, January, Steve. And it was a commitment by the government, by the Feds, to have this process be no longer than 12 months. So those initiatives John talked about, the fact that they will accept work that has already been undertaken and there's been no change, and the fact that they've given prescribed timelines is important to us. Originally, we thought it would be a comprehensive review, because those timelines are in comprehensive reviews, and the panel review looks at exactly the same things as the comprehensive review. The only thing before it, in past, is the panel reviews did not have fixed timelines.

So, I think you are starting to see the government move forward, so that we spent a lot of time in the last, and a lot of money in the last panel review; and that was our angst about going into another panel review, because it was open-ended and very costly. So, we're optimistic that the right things will be looked at in a timely manner.

Thank you.

Next question from Dalton Baretto of, Credit Suisse.

I have a couple of quick follow-up questions to some that were asked earlier.

First of all, just as a follow-up to Orest's question -- can you guys tell me how many actual tons of ore were put through the mill in October?

I can. 1.4 million tons through the mill in October.

That was 1.1 million?

1.4.

1.4 million. Okay, then secondly, on the 9 million pounds of copper that were not settled last quarter (inaudible) -- assuming those were settled this quarter, what price did they settle at?

Well, first of all, that would be reported on our future information, Dalton, so what our individual selling prices will be encapsulated in our Q4 information.

Okay, so that difference, then, will be posted to revenue this quarter?

Is it possible for you to move closer to a phone or something. I'm having trouble hearing you.

Can you hear me better now?

Yes. Go ahead.

Can you give me a little bit of color into the cost for last quarter? Maybe on a per ton basis? Is it looking better now than it did in the past couple of quarters?

Per ton milled?

Per ton milled, yes.

What do you got, John? 10.5 -- [Multiple Speakers]

That's what we focus on trying to accomplish, is to get a cost per ton of copper reduced down, and cost per ton milled is a piece of that. I don't have that right in front me.

As we get the tons milled up -- we are doing over 60,000 tons a day at the moment -- we'll get into different hardness (inaudible). That's dollars spent which we've got a pretty good handle on; the consulting work that we are doing, a lot of that is maintaining and making sure we are spending the dollars where we need to spend it, get our tonnage up to the 55,000 and cost per ton milled goes down.

Okay, great. That's all I had guys. Thanks.

Tom Bishop, BI Research.

You mentioned a top guy in the First Nations was starting to support the project now, if I heard that right?

He came out and made a public announcement that they think that -- and he's the next tribal leader; he was in power -- or not in power, I guess -- but he was the elected Chief for over 20 years; and it's about time they move forward in terms of opportunities for his community and the Native communities in the area. And that they think that -- and his position was that they should look at this next environmental assessment process with open eyes and see where it leads.

Was that due to the 71,000 job-years, or about 3,000 jobs on average per year for the life of the mine, and the other things that were laid out in the C4SE study? Or did he just apparently have a change of heart?

That would be speculative in terms of what his intentions were. I think -- and he did make some commentary about the fact that the forest industry, the area that the TNG rely on, and most of their economic activities come from the forest industry, which is in serious decline in the areas; and he's thinking about the youth where the youth are going to get the next jobs and the next generation of jobs. So, he's been pretty pragmatic. He said, we've got to look at the environment, and we've got to look at the job creation, and they're not mutually exclusive.

But the current leader is not, maybe, quite as supportive?

Yes, there's been other discord. We've tried to engage over the months and years with them, and they have not been very supportive. So, for this fellow to step up and say that he thinks a new look has got to be undertaken on this project because of the ultimate impact it will have on their communities in terms of jobs and the economy, it's pretty good. So, we just hope that we can engage all the communities and not just him.

Okay, so at 55,000 tons of copper production that you are expecting, what would that translate into, in terms of -- I was expecting 90 million to 95 million pounds of copper a year. Was that the right expectation or not?

Well, I think in a very simplistic, if you say 55,000 tons a day times 365 days times 0.95% operating efficiency times 89% recovery, times the head grade, that's how much copper you produced, Tom. If everything goes according to Hoyle.

My recollection is correct, at 90,000 to 95,000 (sic)?

I haven't run the numbers, actually.

You're in the ballpark, Tom And in the first half of the year, we weren't at those rates; that's why it doesn't add up to that this year.

Given we made an adjusted CAD0.04 adjusted in Q2, and there was CAD9 million that was your share of copper concentrate on the dock, and the shakeout continued, and the cost of production declined during Q3; I was a little surprised that we only made CAD0.02 in the quarter, whereas you made CAD0.4 in a prior quarter. I'm not sure, I read the MD&A, and there's a lot of little things all throughout that thing. But can you focus what happened that we didn't make more money with all the stuff that carried from Q2 into Q3?

I'm happy to take a run at that, Tom.

You know, frankly, that was our perspective early on, when we were going through the quarterly preparation ourselves. And, you know, it's a combination of a number of things. The provisional pricing hit revenue pretty hard, given where copper prices were at the end of the quarter, and the unpriced copper that we had at the end of the quarter. So, it affected us on the revenue side. And copper has recovered from the spot lows at the end of September; but as you know, it's been extremely volatile. But, it will be fixed at some combination of those prices over the coming weeks, and some already has.

The cost of sales -- that was the production cost Russ and John have talked about, and highlight the positive trends there. We had a bit of a, well -- our property costs were higher as a result of the fact that we sold considerably more tons in the quarter as a result of the inventory draw-down in the quarter. So that skewed our total cash costs up, but that was an anomaly associated with those increased tons sold. G&A, modest movement, exploration and evaluation -- obviously, that number is up on a quarterly basis and so that's affected it.

Due to Aley?

Yes, exactly. All related to Aley.

You commented on the revenue, but you were hedged, and so I don't quite understand; and you actually showed a loss on hedging of copper activity.

Hedging goes through the other operating income/expense line.

I know, but --

And in the quarter, what happened -- we were hedged at CAD4.00 on our share. It settled on a monthly basis on the LME. The months of July and August, the average price actually settled above CAD4.00; the month of September, the average price settled below CAD4.00; so the net was a realized loss where the copper price led during the quarter.

You know what -- I think off-line, maybe I need to talk to you about how hedging works, because I'm confused on --.

Okay. I'm happy to do it. Anyway, so a number of anomalies or issues drove that final outcome. But I'm happy to talk about that more, off-line with you as well.

I think one of the things was that there was, in addition to about CAD4 million, CAD4.7 million of interest expense, there was CAD8 million of additional stuff under finance charges that -- CAD0.04 alone, well before tax but -- what was that stuff again, I read it, but I don't necessarily always understand.

Yes, so the interest expense was CAD4.8 million. There was accretion on our reclamation. There were changes in the fair value of our financial instruments, which are mark-to-market. There was the realized loss on financial instruments which related to those US dollar dual-currency notes that I was discussing earlier; and then a foreign loss of CAD1.4 million, which is just related to the change in foreign exchange rate from the end of Q2 to the end of Q3.

That related to that money market stuff? From the April offering?

Not the foreign exchange loss. All our net US dollar-denominated monetary assets are translated at the quarter end rate. So that is separate. The realized loss on financial instruments was CAD4.5 million; that foreign exchange loss was CAD1.4 million.

Can you remind us what the accretion of reclamation is again?

It's just an adjustment; it's made every quarter as we move through the life of the mine, accreting to the point where, ultimately, theoretically, at the point where we close the mine, the liability is fully recognized, and we have an asset offsetting that as well, which will be effectively drawing down to fund that reclamation.

You're setting the cash aside already? Is that right?

Yes.

Okay, well I'm hoping for a quarter where we don't have all of this stuff, and we can actually see the profitability of Taseko coming. Is there more of this unusual stuff coming here in Q4, just to give us a heads up?

Well, I think the volatility in financial markets and commodity markets drove a lot of this. And we normalized -- we have a huge unrealized gain related to the copper hedge, but in terms of providing the adjusted earnings and the adjusted earnings per share, we take that out. If that is realized, certainly, that will translate into real earnings; and the foreign exchange volatility as well. All of that drove this result; and certainly our wishes and desires are completely consistent with yours.

Okay. Good luck with that.

(Operator Instructions)

Mark Turner of Scotia.

Just a few more questions -- and actually, a lot of my operational questions have been answered. So, unfortunately, just a few more financial ones here.

I guess, first -- Peter, you had mentioned on the call here that you could also look at potentially extending the caller, your head strategy into 2013. Would that be a strategy change or a difference in how you're looking at it? So I guess, to date, you've been saying you've been putting the strategy in place to protect, or you have he CapEx spend for GDP3; and I just wanted to make sure that, that is still in place or if it will be a change in strategy, if you were to put on --?

I think our strategy is pretty consistent, Mark.

We've actually started hedging copper in the first half of 2009 after we came out of the last financial crisis, and have been pretty consistent. The level at which we are hedged right now is certainly higher than it was in those days, and that is underscored as far as desire to protect cash flow during the period that we are building out GDP3. But our strategy will -- for 2012, we did sell some very high value calls to fund the put that we bought at CAD3.50 and over CAD5.00. My favorite strategy would be to just buy puts outright, and at levels -- I would like to see CAD3.50 or above. So, it's really going to be subject to market conditions, copper markets, and return to something analogous to that; but we could take advantage of and fire away probably on a quarterly basis as opposed to a full-year basis.

So, if the full spend on GDP3 is done by the end of 2012, then you probably wouldn't look at necessarily a strategy to hedge your costs going forward at that point?

Yes, probably more in line with that, exactly.

And so I guess my other two questions are financially related again, there. And it comes back to the interest on the note that you issued in Q2. With that being earmarked for the Phase 3 expansion, could that not have been capitalized? Or because you are in production, it had to go through the P&L?

We are starting to capitalize a portion of it.

Okay, so a small portion of it was capitalized, but a portion was expensed as well, on that? Okay, yes, because if I had to assume that it was all going to be capitalized.

And my final question is a little bit more obtuse. But going to Prosperity -- under the comprehensive study process, the timeframe would have been mandated to be 365 days. Under the review panel, I know Minister Kent has asked that it be completed in 12 months. Does he have the authority, is it guaranteed to be within the 12 months, or is it more of an ask and a recommendation that it be completed in that time?

Oh, no, they have committed to 12 months.

Okay, so it is within his power under the act now to say that under the review panel, it's done within 12 months?

That's our understanding. He has laid out -- remember, the panel ultimately reports to him, so --

Right. I just want to understand the nuances of the Act, and I wasn't sure under the review, if he had the power to mandate the timeframe. Perfect. Thanks, guys.

I am showing no further questions in the queue at this time. I'll hand the call back to management for closing remarks.

Thank you very much, everybody. We look forward to talking to you in the New Year. And we will keep diligently working on those aspects of the Company that are important to the shareholders. So, thanks very much. See you next time.

Thank you. Ladies and gentlemen, this concludes the conference for today.