Taseko Mines Ltd (TGB) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to Taseko Mines fourth-quarter 2013 earnings conference call. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Mr. Brian Bergot of Investor Relations. Sir, you may begin.

Thank you, Saeed. Good morning, ladies and gentlemen, welcome to Taseko Mines fourth-quarter and annual 2013 results conference call. My name is Brian Bergot and I am the Vice President, Investor Relations for Taseko. With me today in Vancouver is Russ Hallbauer, President and CEO of Taseko; John McManus, Chief Operating Officer; and Stuart McDonald, Taseko's Chief Financial Officer.

After opening remarks by management, which will review fourth quarter of business and operational results, we will open the phone lines to analysts and investors for a question-and-answer session. The Company management's discussion will be presentation slides for our webcast purposes.

Alternatively, the presentation can be found in the Investor Relations section of our website.

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 to the (technical difficulty) [actual outcome]. Please refer to the bottom of our latest news release 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 our fourth-quarter and year-end results.

We're very pleased with our performance in 2013. We completed our GDP expansion on time and on budget and we ramped it up to full production capacity much quicker than just about anyone else in the world has done or completed on similar projects. So we feel pretty good about our ability to execute and fulfill the expectations of our shareholders and our employees when it comes to projects.

Our revenue of CAD290 million increased by roughly CAD36.5 million over 2012. Our tonnes mined increased by nearly 23 million tonnes and our tonnes mills increased by 8.2 million tonnes which resulted in yearly production out of Gibraltar of a little over 120 million pounds of copper up from the 89 million pounds produced in 2012. A very notable accomplishment for us.

A professional mining engineer looking at our execution with all the moving parts, we did more than a journeyman's job over the year if we look at what has been going on in this business worldwide. Actually it is kind of a poor reflection so under my profession a battle that most companies have executed over the past few years and frankly it is not the kind of performance that will attract investors to this space. However, there are companies like ours that state within their means and fulfill their commitments with respect to capital discipline and execution.

We look at the transition of our earnings from operations, i.e., operating profit, the metric driving the Company of CAD25 million in the first quarter, generating cash flows of nearly CAD33 million including working capital adjustments, in terms of moving forward with our business plan. We are well-positioned in following our business and strategic plan laid out by my Board a number of years ago.

Turning to the slide presentation, looking at slide 4, we are experiencing what we have termed internally as a superfecta in horseracing, where each horse comes in sequentially one, two, three, four. And we are going to be the benefactors of this superfecta in 2014 and certainly it is the first time in McManus's and my 35-year career where it has occurred.

We've increasing production that I spoke about earlier, 34% increase in 2013 versus 2012. We have decreasing operating costs in terms of cost per tonne milled. 20% in 2013. We have a weakening Canadian dollar which we will speak about later in the presentation. And we have a strong and stable copper price regime. So looking back, all in all, a very impressive year.

As illustrated in slide five, tonnes mined up -- are up 21% and tonnes milled up 81% on a year-over-year basis. In Q4 2013, our tonnes milled are within 2% of our expected life of mine estimation while at the same time, mill availability and [head rig] are well below what we know is achievable and our efforts are now focused on increasing mill availability and getting our recoveries to where they should be so we have more upside even though we produce 58% more copper year over year.

One thing we need to improve on is ensuring that we keep quarter end inventories at a minimum which is, we believe, somewhere between 2.5 million pounds and 3.5 million pounds. The last two quarters have been somewhat problematic for us for a number of reasons, but we believe we have a solution in the pipeline to get a normal amount of inventory in the transportation pipeline corridor.

Obviously it is not in our economic interest to have this working capital tied up as we have had in the last few quarters.

Moving to slide six, over the backend of 2012 and into 2013, we effectively began to move inventory -- excuse me, move recoveries up to estimated levels, achieving roughly 87% in Q3. Then in Q4 when we decided to step on the throughput pedal with our new concentrator, we couldn't quite hold on to recoveries. As soon as we push throughput we lose recovery. But however it is a little bit more complicated than just that as the trade-off between the two can have a significant impact on metal production and profitability as we all know.

In slide seven you can see the step changes with throughput over the course of the year; and when push comes to shove it shows we have plenty of horsepower on our grinding lines. We can easily grind in excess of 95,000 tonnes per day.

What most folks likely don't understand is we made a conscious decision to design for more horsepower where most folks would design for threshold horsepower. So any change in rock hardness, metallurgy, et cetera, you can't make your throughputs. It seems to be a common mistake these days in concentrator designs, so we haven't consciously done that. We have consciously overdesigned and it costs very little extra capital to do that.

In slide eight, slide eight gives you a better appreciation of the relationship between throughput and recovery from July to January. But getting this stabilized to optimize both takes a lot of tweaking, training of personnel, and understanding of how -- of the circuits constraints. But we will get it, it is just a matter of time. But it is pretty illustrative of what is going on with us.

Moving to slide nine, you can see we have made great strides in our moly plant and, while January dipped somewhat, that was mostly driven by lower moly head rates. I.e., it is harder to recover 0.06 moly than 0.010 moly. The moly plant, however, is beginning to perform to expectations as seen in Q4 2013 where we are up 115% over that achieved in Q4 2012.

Slide 10 gives you an idea of where we are going in copper production and the relationship with overall lowering our costs for 10 mills, one of the superfecta components. We believe at this juncture we should process somewhere in the neighborhood of 28 million tonnes to 30 million tonnes through the concentrator in 2014, depending on how we do when mill availability improves.

As I spoke about in the opening slide, a CAD1 decrease in cost per tonne mill its weights are roughly CAD30 million to our bottom line as we process 30 million tonnes. So getting overall milling costs down is a big focus of our operations team.

Our operating costs in Q4 were $1.70 a pound down from $2.30 in Q4 2012 and are a function of mining operational efficiency gains, increasing byproduct credits, capitalizing some of our [strip] and general adherence to more disciplined cost control.

If we look into 2014 the declining Canadian versus US dollar will have a major impact on our profitability, i.e., a CAD0.01 drop in the Canadian versus US dollar increase or our operating cash flow by roughly [CAD4 million]. The spot market for TCRCs is changing rapidly as we speak. So by midyear we expect them to be down dramatically as a result of Indonesia's export ban on overall supply disruption.

Having said that, we know that spot perimeters have dropped to 85 and 8 1/2 and while we are not much influenced by spot terms, it is a good indication of where the long-term market could be. And I think we will see some big changes in midyear negotiations this year as opposed to last year. And that bodes well for our year-end negotiations on our TCRC extension negotiations. And we do have a premium with respect to the Gibraltar [con], because it is one of the cleanest cons in the world.

Looking forward in terms of our projects, first I would like to speak briefly about Aley. The Aley metallurgy has been a challenging undertaking. Obviously I have spoken about it for a number of quarters here. And that is mainly because carbonic tight ore bodies are all slightly different throughout the world. [Niobeck] is different from Anglos Mine in Brazil as it is from [CBM's] mine. So effectively we haven't been able to use the off-the-shelf flowsheet so, effectively, we had to create our own flowsheet.

For us up to this stage it has been about how we removed the appetite and leave the niobium. Simplistically, that gravity process we have been using gets us around a 35% recovery and when we started we thought it would be higher, but we could not achieve a higher recovery. We could not get rid of the appetite and when we got rid of the appetite and the flotation process and the gravity circuits, we also lost, sorry, lost niobium, which is not a great combination.

So we have decided that on an engineering perspective that with the impact on MPV of going from a 35% to a 45% recovery, we began thinking technically differently about how the gravity circuits should interact with the flotation circuit. We have discovered that by better collector conditioning we can modify the gravity circuit, make it smaller and have a larger flotation circuit which allows us to more effectively deal with the appetite and more easily separate it from the niobium.

So, in essence, we believe solving this issue would increase the MPV significantly as we believe we can produce the same metal with the 10,000 tonne per day plant versus our ideas of a 15,000 tonne per day plant. And this will reduce our capital by approximately CAD100 million.

So ensuring that our metallurgy is correct, it is critical and moving forward, this will delay our publishing of our 43-101 report and at this juncture we believe it could be 12 to 16 more weeks before we have one of those reports ready. But we are pretty excited on what we believe will happen in the circuit now that we think that we have an idea of what we do with the appetite in terms of the gravity circuits and into a relationship with collector system.

With respect to Prosperity, we should know where we are going with the project by next Friday when the 120 day period for the (inaudible) decide how to move the project forward comes to an end. Our position has been made clear. The panel came to a wrong conclusion on tailing sequence by using incorrect planning for Natural Resource Canada, contrary to what we put forward in the panel review. This project will not cause adverse environmental effects and it should be moved back to BC for permitting. Our commitment has always been to install a liner to produce (inaudible) (technical difficulty) and ensure Fish Lake remains a viable ecosystem. And we know it is achievable.

I would like to now turn the call over to Stuart to speak a little bit more about the financials.

Thanks, Russ, and good morning, everyone. We released our 2013 annual and fourth-quarter results yesterday, but I would like to focus my comments specifically on the fourth quarter.

The natural results for this quarter showed continued improvement as we began to realize the full benefit of the second concentrator at Gibraltar. Fourth-quarter earnings from mine operations before depreciation were CAD25 million, an increase over the third-quarter figure of CAD19.5 million primarily due to higher copper sales volumes and reduced unit operating costs.

Revenues for the fourth quarter were CAD95 million from copper sales of 27.7 million pounds. Copper concentrate inventories declined over the period but still remained at higher than normal levels due to a delayed shipment at year end. Our 75% share of inventory was 7.6 million pounds of copper at year-end. And as Russ mentioned, we expect this level of inventory to further decline in the first quarter.

Turning to cost, the fourth quarter showed continued downward trend in unit operating costs with total operating costs coming in at $2.14 per pound. This is a significant reduction from $2.72 per pound in the fourth quarter of the prior year. And in fact, since then we have had four consecutive quarters of declining costs.

Operating costs in the current quarter benefited from higher molybdenum byproduct revenues and capitalized shipping costs. 8.3 million of waste stripping costs are classified as capital expenditures in the quarter, in accordance with accounting rules.

G&A costs were CAD3.9 million in the quarter, down from CAD6 million in the same period last year due to lower stock-based compensation expense and the timing of stock option grants. Exploration expenses were CAD2.6 million in the fourth quarter which includes the cost of permitting initiatives at the new Prosperity project and also expenditures on the Aley niobium project. We have continued to take a conservative accounting treatment and expense these costs through the P&L. This may change in the future, as we may begin capitalizing on this project costs after permitting and feasibility milestones are achieved this year.

Other expenses in the fourth quarter included CAD1.6 million related to the change in fair value of our copper put options. We are continuing to maintain our strategy of purchasing out of the money put options as protection against a copper price downturn. And we currently hold about 40 million pounds of copper put at a strike price of CAD3.00 per pound and those maturities of those are spread over the first three quarters of 2014.

Finance expenses in the fourth quarter were higher than normal, primarily due to a CAD5 million adjustment to non-cash accretion expense on our [red] miles royalty obligation. This royalty will be bought out and extinguished in the fourth quarter of 2014 using the proceeds of a promissory note. So all royalty detainment is being funded by the promissory note and, therefore, there will be no cash outlay by Taseko in 2014.

The weakening Canadian dollar resulted in an unrealized foreign exchange loss of 6.4 million on our US dollar denominated long-term debt and receivables amount so that was also effective as in the fourth quarter. But the weakening dollar has a very positive impact on our business going forward into 2014 and I can talk a bit more about that in a minute.

The all-in GAAP net loss for the fourth quarter was CAD9.8 million. Adjusting for unrealized foreign exchange losses, non-cash accretion on the royalty obligation and certain other items yields adjusted net earnings of CAD0.8 million for the fourth quarter which is essentially breakeven.

In terms of cash, we maintained a strong cash balance of approximately CAD83 million at year-end. Cash flow from operations totaled CAD33 million on the fourth quarter and this was offset by cash outflows for capital items and also CAD50 million for debt service costs. The main capital items in the fourth quarter included CAD8 million of capitalized waste stripping costs, CAD5 million of other sustaining capital items at Gibraltar, as well as investments in copper put options in marketable securities.

As we look forward to 2014, it is important to highlight the impact of the recent weakening of the Canadian dollar relative to the US dollar. Given that all of our revenues are US-denominated and substantially all of our costs are Canadian dollars, the recent trend has a very positive impact on our margins and also our cash flow.

So to put this in perspective, if we have the benefit of a current exchange rate, which is about CAD1.10, if we had had that rate throughout 2013, our operating cash flows would have been about CAD20 million higher. And with the increased copper production expected in 2014, this sensitivity will be even greater. So that is a positive.

So, in conclusion, as the fourth-quarter earnings and cash flow continue to show positive trends from the ramp-up of the second concentrator [accu] filter, we are starting 2014 with a strong cash position, positive cash flow, downside copper price protection from productions and no significant capital programs in progress.

And with that I will turn it back to Russ.

Thank you, Stuart. Okay, operator, I would like to open the phone lines for any calls.

(Operator Instructions). Chris Chang, Laurentian Bank.

My first question is around the lower grade ore in the granite pit. I was wondering how long do you plan on mining at that zone or at lower grade at least, and are there any thoughts on 2014 guidance on how [that's throughput] production?

I think we in the mine plans about five months, four or five months, John.

Yes. We are out of that zone at the end of the first half.

And it is typical of the Gibraltar deposit you move through these zones, it can vary by 10% up or down just on the mine plant sequencing.

Okay and thereafter you plan on being back to the reserve grade type of thing?

Yes.

Okay. And how about on 2014 guidance you plan on putting out a throughput or a copper production level guidance?

No. I think there's some -- if we are looking around 28 million to 30 million tonnes, then I think that's the guiding factor.

Okay. That's good.

I mean there's so much -- there's variability in the head grades and that kind of stuff. So, I think that is a fair number to look at. If you look at the last quarter, we did 7.6 million tonnes to the concentrator. You annualize that and you get over 30 million tonnes.

Having said that, depending on how we -- our mill availability there's some upside in this, but --.

Plus, Chris, we are balancing throughput with recoveries (multiple speakers) other optimization (technical difficulty). Given the right material through each circuit, each mill because they are different. So we don't have a hard number on that, really. We have what we are targeting.

Okay, thank you.

Mark Turner, Scotia Bank.

Just wanted to follow on with a theme of questions last quarter in terms of the mining [REIT], obviously the mill itself has ramped up really quickly here. Just wondering what is being done to ensure that the ore supply of the mill is going to keep up with the ramp-up of the mill itself.

Well, that is kind of what we do as mining engineers is make sure that there's ore available for the mill. I think we talked in the last conference call a bit about this too and that we -- some of the things that had happened we have got been pushed a bit off sequence. So although our strip ratio is at or above the bit average that we are in, we had some availability issues. We did run some stock (inaudible) in the fourth quarter, which is fine. That is why the stockpile is there. But now we are moving up and pushing back in a part of the pit which is going to give us better access to be able to improve our productivity.

So overall, the strip ratio and the pit we are in is 2.6 to 1. We are going to be doing 3.2, 3.3 to 1 this year. That above pit average gets pushed into a [capalay] strip through the accounting process, but it is just material that we had to move anyway and we have accelerated a bit to give us more elbow room.

Right. So I guess, I appreciate most things, so it is the last quarter and you moved to about 21.5 million tonnes. Now, on -- I guess on my map on a sustainable basis you need to move around a 30 million tonne mark.

Is that -- so where you see the operations going and you have the equipment to get to that?

Yes. That is about right. And we have got the equipment. We have just got to get the productivity where it should be. We have had long hauls during this period too, but the other things is we move up to the top of the pit, and we really push on that stripping. It is not a dollar for dollar exchange because that stripping up at the top of the pit is a lot cheaper just the [piece toll] is shorter, that the big shovels there --

We have had some trouble with availabilities on our shovels to some degree and we have lost and we are dealing -- we started dealing with that in October and -- October and November and Mark and the equipment manufacturers and the supplier have a tough time -- have had a tough time responding to it. Our shovels are running about, right around I think 80% availability. The two big -- two of our big diggers and they should be closer to 90%. And that is obviously affecting our waste movement.

But those are things we are on big time right now. We have got some --

Okay, and yes, because at one point I think there was thought that you might have a contract or come in with smaller equipment so you could actually have better efficiencies than some of the more constrained areas to help with some of that strip. Are they there now? Or is that still the plan?

Yes, they are there. They got up and running in January. And they are right up at the top and moving back some of the more -- less productive areas that if we put the big equipment that we have gone into. So actually what you'll see on a cost per tonne or a cost per tonne will go down as we move more tonnes.

Right. With the more better efficiency and the smaller [commit] in those areas. Okay. Okay, thanks for that. Just one other question, then switching gears here. Realized price in the quarter of CAD318. Just wondering if there is anything specific with that or if it was just sort of more timing of sales. Because as you mentioned the concentrate from Gibraltar is pretty clean and world-class.

There is nothing unusual there. I think it was more just to do with timing issues around when those prices were fixed. Nothing unusual really to comment on.

Okay, perfect. Thank you.

Jackie Przybylowski, DesJardins Capital.

I just have a quick question for you on your throughput versus recovery trade-off. I know you said you are targeting 95,000 tonne per day throughput and you are targeting 93.5% recovery. But what would be -- maybe as a combination, your optimum, so what maybe could we expect to see a combination of those two coming in at?

I think you may have taken my comments a little out. We can push that concentrator to over 95,000 tonnes a day. But that is not what we are proposing to target for the year.

So there is a trade-off between what John and Dave can get for recoveries within 4000 or 5000 tonnes per day versus -- we may run at 82% or 82,000 tonnes per day and get 88% and 89% or 89.5% recovery or we may push it to 85% and get 87% recovery, but that is all the tweaking that we are talking about. Optimizing the two circuits.

I think -- the other number that got mixed up there was when Russ just said 93.5 that is availability for the mill, mechanical availability.

Oh, yes, sorry about that. Yes, you're right.

Yes, our target for recovery is 87% to 89%.

87 -- . Okay. And your guidance that you just give the 28 million tonnes to 30 million tonnes for 2014, what is the mill availability that you are assuming in that case for this year?

For this year we are using 90% overall.

90% -- okay, thank you.

Yes, because we are still sort of a ramp-up.

(Operator Instructions). Adam Low, Raymond James.

Good morning. First question I have is curious as to what your budgets might be for various items this year. In particular, spending on Aley exploration in and around Gibraltar and sustaining CapEx at Gibraltar.

You want to answer that now?

Yes, Adam. As far as Aley goes we are kind of -- we put a certain amount aside for other than Gibraltar expenditures and a lot of it depends on how things go in New Prosperity. We don't have clarity there yet on where we are going to be putting our major efforts. I think it is going to be New Prosperity, but I don't know for sure.

So between the two we are about CAD10 million in the budget, but I mean if New Prosperity gets approval and the Board approval and Stewart gets the financing things accelerate, we may spend more on new Prosperity. So I can't really answer that one that well.

Sustaining capital at Gibraltar is, we are through the capital investment there. Big ones, basic sustaining capital is going to be about CAD0.10 per tonne mined, is the way we --

Into CAD13 million.

Yes.

Somewhere in that neighborhood.

And if there is anything extraordinary above that it has to be justified in the short term. So that is our CAD10 million to CAD13 million.

Are you planning any exploration in and around Gibraltar this year?

We do a bed of infill drilling every year and that is included in that sustaining capital.

Okay, all right. (multiple speakers) one last -- thanks, but I have one last question. It is an accounting question.

Just wondered when you guys do capitalize your stripping, which line in the cash flow statement is that included in?

It comes through as capital expenditures so it comes through as additions to property, plant and equipment. So, yes, as I said in the fourth quarter, the strip, that capitalized strip was about CAD8 million, CAD8.3 million actually.

Perfect. That's it for me. Thank you.

Adam Graf, Cowen.

Good morning. Couple of quick questions and I missed the beginning of the call in case you gave this out already, but as far as full-year 2013, Russell, can you maybe break out your thoughts per tonne, mining cost per tonne mill?

Mining cost per tonne mill, Adam, or cost per tonne mining?

Yes, your costs -- your mining costs per tonne ore and then your milling cost per tonne ore.

All right. John will answer that one.

The total between the two is just over CAD10 to CAD11 per tonne mill, per tonne mill. That is site cost. Includes G&A, mining, and milling. But that change during the year dramatically as we got the mills, two, up and running, so it was a step change here.

Cost per tonne line is about CAD1.50 and that should get better because we were in low productive areas and, as Russ mentioned, we had some mechanical availability problems where you spend more on equipment when you are working on it than you do when you are running it. So, we see both of those to improve this year.

That CAD1.50, that is Canadian?

Yes.

And that's cost per tonne to move a tonne of rock and waste and ore is about the same?

This year, it was, yes, because we had long waste haul. Once you get into a better waste haul like we are in right now and your cost per tonne mine for waste goes way down and then you have got three tonnes of waste mined for every ton of ore mined. So, again, your cost per tonne mined goes down.

And then the -- so that -- so you are at about CAD1.50 now or is that what the average was for 2013?

That was 2013. We are beating that now.

You are beating that now. Is that just lower diesel price or a weaker Canadian dollar?

Higher productivity.

Right. Okay. And did you give a guess to where you think the total cost per tonne milled will fall in 2014?

Between CAD10 and CAD11 per tonne we believe.

Okay. So that is 2014?

Yes.

Okay, great. And on a totally different subject, on the molybdenum recovery side, I had in my notes that you guys have a target ultimately of getting up to 50% moly recovery. What's sort of the goal in 2014 and the path to get to there to get that 50%?

The goal is 50%. The issues that we have got here that we have had is we started up a new circuit, we built a new moly plant, so we have got new concentrator, old concentrator, new moly plant. And getting all three to work together to achieve the targets that we are at, first we went through throughput, then we went for cost of recovery, now we are on moly recovery and we are achieving it on a regular basis. So the place is designed to do 50% moly recovery and I believe we will get there.

Do you think you'll get there by the end of the year or sometime next year or what is your --? How do you envision that?

Well, I have to be careful what I say in case the employees are listening. I want it now. But it is a process. It is a process you have to work through with these new circuits and we have had some very good success with it.

Some of the things like Russ talked about if you have variation in grade, if you are at a .006, you can't get 50% recovery. But our target is 50% recovery at .01 moly [upgrade] and we (multiple speakers) when we are in .01 upgrade.

And do you have any -- is 2014 and beyond sort of all expected to be sort of an average .01 grade or you got significant variations in there that you can see in the mine plant?

No in the next five or six years, I can't remember exactly out to the far end, but the next five or six years is basic .01. (multiple speakers) variabilities, but --

Yes. It is not huge very abilities. Yes but if the copper grade goes up I think the moly grade goes up a little bit, too.

Yes, they come together.

Yes.

Got it, got it. Perfect. That's all of my questions. Thanks.

Steve Parsons, National Bank Financial.

Good morning. Wanted to go back a little bit on the sustaining CapEx again. It looks understanding that the guidance was for about CAD0.10 per tonne mined, CAD13 million. Does that include the somewhat accelerated strip?

No. That is on top of that. But it's not capital stripping. It is not like a pushback or anything like that. The accelerated strip and the capital stripping is really it comes in as an accounting function. We are going to move an extra 15 million tonnes above what the -- 15 million or 20 million tonnes above what the pit strip ratio is. So that incremental amount goes as a capital strip. It is not -- if we get that at CAD1.00 a tonne moved it is CAD15 million to CAD20 million that we put in cash into deposit and throughput capital workings and Stuart's ready to say -- Stuart?

(inaudible) strip ratio would be lower next year or lower of that?

At some future date, it rotates. There is a difference between capital strip and capitalized strip so if there was a big mountain of material there we had to move to get it down to the average strip, that would be a capital strip investment, Steve. This is just capitalizing strip under the -- over the average life of the ore body. About the average strip. And I think there's a lot of confusion about what that means just because it has got the connotation of capital in front of it. They are two distinct things.

Yes, I would have to agree. I think some guys are probably jamming like CAD15 million more CapEx and not lower the strip in the future. So that is helpful.

Yes, that's -- the strip will cycle back down because I think right now at the bottom of the pit there we are probably mining at .7 to 1 strip. The average strip of the pit is about 2.6 to 1 and we are mining a 3.9. So it is just a scheduling issue and then that stuff over the life of mine comes back at some point in the proper sequencing of the mining plant.

But basically, in a simplistic world it -- not a simplistic world, in the actual world it is just the opportunity costs that we are spending today versus what we would spend down the road. So that is really the incremental little tiny cost because we are going to move that [mock] anyway. It is got to be moved.

Got it, okay. Next question.

Is that clear?

That is clear for me, Russ, thanks.

Okay, thanks.

Maybe moving on and when the recovery dipped lower in the first cost, straighter cost maybe couple years ago, you put in the [Verdi] mill, or don't know whatever it was I can (inaudible) (multiple speakers) is there a chance to put something like that in in the [new cost trader] or maybe add to it and keep your throughput rates up (inaudible) to the higher triple rates at 95,000 tonnes a day?

No, I think what we have got is an operating and training and supervision issued to get the equipment that we have got to perform to the design level. We have got all the regrowing circuit in the new mill is identical to the re-grinding circuit in the concentrated one. And the gear is there, but we went really from one flotation circuit to three by putting in the new concentrator plus a you moly plant. And so we went from one group of flotation operators to three groups of flotation operators. And it takes a while to get them to the level they need to be at.

Some of the things that we are doing to help, we are installing cameras on the flotation cells in order to monitor the froth performance and that gives the operators another tool in order to optimize refinements in the flotation. So that is a change that we have gotten onto the technology but other than that, there is no reason that -- the lower recoveries we had are not because we are missing some gear.

Yes, and I think, Steve, you worked in concentrators before, you know that there's float operators and there's technology and you know that there's real good flotation operators and there's guys that aren't so good. And we have to train up the guys that aren't so good and between the quality of the people in each shift and we can see when we do the analysis that a chip change, we lose recovery. The mill feed changes a little bit and the guys are a little reluctant to use the technology at their fingertips to react. And so we find that once we have more homogeneous feed coming out of the pits with respect to the stockpiles in an overall better, more consistent feed and less variable, less variability in the feed we see a recovery. So it is a big sequentially thing that I was talking about training and tweaking these systems.

But once we get our crews all trained up to the same expectations then we will see more consistency in our recoveries. And we know that we had 89% when we had the old mill, the old concentrator. Now we have got a double concentrator. We know that that's -- it is just going to take some time and training like John was talking about.

Very good. That's it for me. Thank you very much.

I would like to hand the conference back over to Mr. Russ Hallbauer for closing remarks.

Thanks very much for the questions, folks. We will look forward to talking to you in the next quarter. Cheers. Hope you guys in Toronto are not freezing too badly anymore.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect and have a wonderful day.