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Claude Resources Inc. (NYSEMKT:CGR)

Q3 2012 Earnings Call

November 14, 2012 11:00 am ET

Executives

Marc Lepage – Manager-Investor Relations

Neil McMillan – President and Chief Executive Officer

Brian Skanderbeg – Senior Vice President and Chief Operating Officer

Analysts

Kevin Chiew – CIBC World Markets, Inc.

Sam Crittenden – RBC Capital Markets

Joseph Hopper – Claude Resources Inc.

Operator

Good morning, my name is Amanda and I will be your conference operator. At this time I would like to welcome everyone to the Claude Resources Third Quarter Operating and Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. Marc Lepage, you may now begin.

Marc Lepage

Thank you, Amanda. Good morning and thank you for joining us on our third quarter 2012 earnings call. We would like to welcome all analysts, current and prospective shareholders and the media. On the conference call today, we have Neil McMillan, President and Chief Executive Officer; Rick Johnson, Chief Financial Officer; Brian Skanderbeg, Senior Vice President and Chief Operating Officer and Peter Longo, Vice President, Mining.

I would like to announce that during today’s call, the Company may use forward-looking statements. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. For further information regarding forward-looking statements, you are welcome to the read our cautionary note located on page two in today’s presentation, which our presentation is also located on our homepage of our website within corporate presentation icon on the left hand side. Please note that you can view the 2012 third quarter MD&A financials on our website in the Investors page under Financial Reporting.

I’d like to now turn the call over to Neil McMillan, President and CEO for comments and then we’ll go to questions.

Neil McMillan

Thanks Marc and good morning everybody. Thanks for joining us on our conference call, I know it’s reporting season and that people have lots of choices as to where to get information. We appreciate your coming in our archive.

I’m going to go through the slide presentation about the third quarter that we’ve included on our website and then we’ll go to questions. I apologize any other time I’m babbling bronchitis and if I become incapacitated during the call I’ll turn it over to somebody else.

On page three of the slideshow, we’ve listed highlights from the third quarter at the top of the list of course, net profit of $3 million or $0.02 a share and this is after our non-cash deferred income tax expense. Cash flow from operations was $8.6 million or $0.05 a share, production in the quarter was excellent at 15,000 ounces of gold or just over that. Our gold sales are 14,000 ounces or about 1,000 ounces below are produced was because of the timing, we made our last pour of the third quarter on September 18, we did recover an additional 1,000 ounces of gold between September 18 and the end of September, but we didn’t pour that until early October. So we have 14,000 ounces sold, the average realized price 16.63, a good revenue number.

total cash cost per ounce came down quite substantially from previous quarters, although it’s still too high in our view, came down to $920 and we’ll talk about that a little bit in the presentation. Another highlight was the L62 Zone, which is parallel to the Seabee underground mine, it’s about 200 meters away. This was a discovery that was made in the middle of 2011 and is already in production and certainly this quarter, we have it developed on three levels, and we will be producing out of it in the fourth quarter, it’s good grade and closed infrastructure, so it’s a big part of our success going forward.

The shaft extension, which has been a project we started in early 2011 is nearing completion, we have amended the schedule somewhat for a variety of very legitimate reasons. we have five or six different stages of completion to do on that project and we were looking at one point in time of doing them all together for about a 40 day shutdown and completing that in the fourth quarter, we are now going to do it, one piece at a time for mini shutdowns and completed in the first quarter of 2013. The result of that will be that the shutdown in the first quarter of 2013 will likely only be 20 days as opposed to 40, and that we will reduce the risk of some of the completion challenges that we might normally have in a project like that. We have stated before and we will repeat that we do not expect the shaft shutdown either on its previous schedule or its current schedule of one piece at a time to materially interrupt our production going forward.

We are satisfied that it will once completed in the first quarter generates significant savings to us on our lifting cost out of the Seabee and L62 ore bodies. We will be releasing updated Santoy Gap drill results here in the next few weeks. We’ve had a busy season at Santoy Gap and not only are we going to release the drill results, we will have an updated 43-101 report release as well in the next few weeks about Santoy Gap. Santoy Gap as you know has been a superb discovery for us again only discovered in mid-2011 it’s already becoming one of the largest if not the largest ore body we had at Seabee in its 20 year history. So we’re excited about that and we’ll have more news for you going forward.

Lastly we did celebrate in August our pouring up our 1 millionth ounce, at the Seabee project. We believe that will be the first 1 millionth ounce of several 1 million ounce ceremonies. We have 1.3 million ounces additional ore in front of us right now, after having already produced one million. We are demonstrating that the Seabee mining camp is in fact, a project with significant long-term endowment in terms of economic gold deposits.

On page four, we just did a quick bar chart for you on ounces produced and cash cost per ounce. The thing obviously that is important to us is the trend, we have an excellent trend going this year, we expect that to continue going forward. Although I can tell you in our business every quarter over the next five years, will not be higher than the quarter that preceded it, but we do expect the trend to continue. I can't say we are and we will talk a little bit about it working on our updated life of mine plan, it's a Greenfield document, you have never ever finished it because it changes all the time.

But I have said to people that I believe, for some time now that of our 1.3 million ounces of reserves and resources, we should be able to schedule that out into the 90,000 ounce range. At this point, I’ve seen nothing in our life of mine plan that would indicate that was an unreasonable expectation. And frankly, our assessment at this point is that we should be able to increase our production going forward, by an average of 10% to 15% per year on a compounding basis.

The cash cost trend line, while the trend is fine, again, we’re not happy with the general level. We think we have significant opportunities to lower our cost, going forward, and it is one of our principal focus in our operation. Our increased costs this year, largely related to, over half of it is and labor costs, a big part of it was what I would refer to as a one-time adjustment to our salary levels to get our employees in line with the market, our market in Western Canada is moving rapidly and we have to stay on top of it.

I think we all have hearing, but we did have a fairly significant adjustment on the first of April and again on the first of September in order to get our staff in this case the P50 range, but the trend is good and as we expand our operation we expect our cash operating cost to continue to come down, and we’ll see going forward how far down we can bring them, but we are optimistic about our ability to do that. Obviously the revenue was up and I realize gold price been relatively flat for the last 12 months.

Again we generate enough revenue here to continue to make money for our shareholders and to grow that operating margin we do think the price of gold is more likely to be higher than lower going forward, but again we don’t build our business case around higher gold prices we build it around our operating margins.

On page six, again you can see a substantial increase in cash flow as you would expect as our production goes up quarter-over-quarter and net profit negatively impacted in quarters four, one and to some degree in quarter two over lower production and higher operating costs, but again we like to trend we are on, we expect to continue to make money going forward and to see our costs continue to come down.

Number seven; page seven is a discussion or at least a chart on our current financial position. I know some of our shareholders are concerned about that. We expect to finish the year relatively flat from a cash position with an unused line of credit of $5 million. We also have an obligation at $9.8 million debenture that matures in May of 2013 that we have to deal with and beyond that, we have some short-term requirements for cash over the winter resupply, although we would expect that winter resupply expenditure to be recovered out of inventory during the rest of the year.

We have about $8 million in fixed term debt included in the $17.3 million you see there, that was financing we put in place to fund fairly large capital expenditure on machinery in 2012, it’s a three-year flexibility, we’re paying it down obviously, we’re nearly done the first year of it. That facility, while it’s a three-year term, does have a demand provision in it.

So we list it as a current liability, although we don’t expect the payment that we demanded on it beyond its normal terms. And the debenture as I said comes due in May. we are currently have incurred most of our capital costs for 2012 have been expanded probably over 90% of it. So we don’t have any surprises over the balance of the year with respect to capital expenditures, we budgeted to spend nearly $30 million on capital in sustaining capital and expansion capital in 2012, I think will come in somewhat less than that, but importantly, going forward, we expect our sustaining capital cost to be substantially below that on a go-forward basis.

So while we do have to be mindful of our balance sheet, we think we’re in a reasonably good position to deal with any challenges that those offer. we are intending to access the debt market in the near-term. we have no intention of doing an equity-based transaction, and I appreciate people speculate that that’s possibility, we have no interest or intention of doing that here in the company; one of the reasons for that is that we see the debt window is wide open. We have significant potential ability in our company to service debt. we have in the past with no difficulty and we expect our ability to do it in the future to be even more significant than it has been in the past.

We are seeing multiple opportunities to provide debt financing for the company going forward. the principal reason to do it, we have timing reasons, obviously with the debenture. we have very minor net capital investment in the company expected in 2013, and we have every ability to be self-financing in our expansion going forward. We will probably access debt somewhere between $20 million and $40 million, and that would go $10 million to repay, Brian?

Brian Skanderbeg

So moving on, now Neil is just going to take break for a second here.

Neil McMillan

It’s okay, I am back. Thanks very much again, I apologize. We expect to resolve that debt issuer put something in place potentially as early as the end of the fourth quarter, but certainly in the first quarter of 2013. and at this point in time, we’re quite encouraged by the interest that has been shown in this opportunity. And we can certainly take questions on that later if anybody has any additional questions. Operations update on page 9, we have forecast 48,000 to 50,000 ounces of gold for the full-year. we do expect to reach that objective unit cost, again, estimated to be 10% higher than $908 cash costs in 2011, that trend we do not expect to continue, we and Peter or Brian can talk about the initiatives that we’re undertaking that we think can lower our costs. And again L62 Zone is expected to be providing commercial feedstock to the mill in the fourth quarter.

We had a good exploration program this year, obviously, a big expenditure at Seabee, our work 44,000 meters already completed underground and our 40,000 meters surplus program is already complete. And again, we will have news for you on that, particularly as it relates to Santoy Gap, and the update is 43-101 resource calculation.

And page 10, and again, Brian has certainly been in a position to answer questions for you on this. We intend in the fourth quarter to do the resource update in the drill program. This is a very significant addition to the value of the Seabee camp, the Santoy Gap assets. Santoy 8 is already in production. Santoy Gap has a resource of just about 0.5 million ounces.

we are particularly interested in a very, very much large core portion of Santoy Gap that is very high-grade and very wide in structure and it has the potential to have a material impact on our production in the next three to five years. And again, you’ll get more information on that. We are finished the end of last year with Santoy 8 and Santoy Gap, these two projects are 14 kilometers or about eight miles from the Seabee from the mill and we do truck over there.

We are mining commercially out of Santoy 8. Santoy Gap we are developing a ramp towards it. And you can see on slide 10, a line running from Santoy 8 to your left into Santoy Gap that’s the proposed drift that we’re running out there, it’s getting close to the orebody now, it will be probably in the first quarter, I expect will be at the first page of the Santoy Gap orebody. we had at the end of last year, nearly 800,000 ounces in total, resource on these two projects, and it’s our expectation that we will be closer to 1 million ounces by the end of 2012. So stay tuned for that that should be very good grade, low costs, feedstock for the Seabee project. and it will be one of the material reasons why we expect our production to go up and our cost to come down.

You’ll see on page 11, the increasing Seabee gold production profile from 2010 through to 2016. this is our historic bar chart that we have provided to our shareholders about our growth, and that bar chart will be updated in the fourth quarter. It is forward-looking information, but we do want to let you know where we think our production is going. you might expect that the bar chart, because this one didn’t include Santoy Gap, but the new bar chart, the new life of mine plan does include Santoy Gap in the five-year chart will look somewhat different than this obviously; we have the potential for to look better.

So again, stay tuned for that. The life of mine plan is a highly detailed document put together by Peter Longo’s group. but it is an imperative process that changes constantly and as I say it’s a Greenfield document. so at this point in time, this is our, you will see our best estimate of where our productions going, going forward and as I said, in general, we expect our production to increase by 10% to 15% per year on a compounding basis.

On page 12, just a quick review of the capital projects we’ve done quite a bit work on our mill including, we did an eight-day shutdown in fourth quarter was originally scheduled to be done with the shutdown, this will help us out in terms of our timing. Our mill is currently capable of producing at peak rates of nearly 1,100 tons a day. we calculated sustainable capacity at 85%.

So we can run at 850 tons a day and at times, if we need to catch up et cetera we have lots of flexibility. So after the eight-day shutdown, we had for it, we’ve been running it close to 1,000 tons a day for the last week or 10 days since. so we have quite a bit of flexibility there. At this point in time, our mill is not considered to be a bottleneck to us increasing our production going forward, although it will require additional expansion under our current life of mine plan.

The shaft extension again, we have scheduled it to be completed earlier, but we’re going to be careful about how we do that to make sure there’s no hiccups. Again, we have the significant amounts of feedstock available outside of the Seabee Deep for the shaft currently gets ore from.

We have significant amounts of ore available to us, and we do not expect a material interruption in our production while that goes on, we could see our grade come down a little bit, because we’ll be increasing production out of Santoy 8 and milling from stockpiles on surface, but the truth is while the shaft is shutdown for tie-in. we will continue to mine underground in Seabee Deep and in L62. Those tend to be higher grade deposits at the moment and when shaft shutdown is complete, when the tie-in is complete, we will take that mill back up to hopefully 1,000 tons a day in catch up with that higher grade ore from underground.

So at the moment, we expect that tie-in to be completed in the first quarter. We have spent well over 90% of the total capital to be invested in this project has already been spent. So there’s not much left to do on it. And the delay again, we weighed the cost of the delay and the cost also delaying the tie-in is really the tie-in value of the savings that we will get once the shaft is tied in and we weighed that against the risk of having a hiccup on the tie-in. so our view was better to be careful here than to rush it. and I’m quite satisfied that the shaft tie-in will go smoothly and everything we expected to do will happen. It can have a significant impact on our operating costs and ore being skipped up from Seabee Deep and L62.

We have been upgrading our camp as well. we are expanding as well as replacing some of our older units. And those upgrades were completed in the third quarter. So again, we don’t have much capital left to spend over the balance of this year; virtually everything has been spent in the mill. The camp is finished and the shaft extension is pretty much off date for it.

Lastly just a quick update on the Amisk and Madsen, our Amisk project is undergoing a preliminary economic assessment. We have 1.6 million ounces there that 0.83 grams per ton, it is a reasonable looking open pit project. We do want to get our head around where we’re at with respect to economic viability that will help guide us with respect to what kind of work we do in the project going forward.

and we are currently developing an exploration program for Amisk for 2013. we have lots of additional work to do there. we’ve stated a great deal of additional property and we are planning for example, I think to do another fly by mag survey et cetera to update the information that we have and we’re doing on the ground target development. So it’s a good project and we’ll continue to advance that in the PA will give us some idea of what we’re at with it.

The same in some respects goes for Madsen and that project is excellent. We have at the moment 1.3 million ounces of 6 grams at Seabee and that is a robust gold mining project; put it into context that Madsen, we have nearly 1.25 million ounces of 9 grams, 50% higher grade with nearly full infrastructure, and the ounces are close to existing infrastructure.

We have completed at the end of September our Phase II deep drill program at Madsen, designed to test the down plunge continuity of the high grade number 8 Zone and the continuity of the initial, the original Austin and McVeigh Zones that produced most of the gold in the Red Lake camp. We are still receiving assay information on that drill program as late as yesterday morning. And once we have all of that information here, we will press release to you the results of that program.

The next step for us here is to do an economic assessment on Madsen. We budgeted this last November a year ago, because we knew once we were done this deep drill project, we wanted to take a breather and try to do that economic assessment. That assessment will start in the next couple of weeks, once we have all of the drill information back, and we will have a good look at it, as to its potential to go into production and try and get a handle on some of the costs that might be associated with it. This project is similar to Seabee in one respect and that’s the potential to have low capital costs per ounce of annual production to start it up. The thing that makes the Seabee projects so appealing is our ability to substantially increase our production for relatively low capital costs, and to put that in context, my observation is that cost about $5,000 in capital for every one once of annual production.

If you go to start up a new mine, and that figure is probably nearly doubled over the last three to four years, but that’s the figure I see and I have seen acquisitions made in the marketplace where companies go in and buy another producing company and they paid about $5,000 per ounce of annual production.

The thing about Seabee that is so compelling is that we expect to be able to substantially increase our production probably for $1,500 to $2,000 per ounce in capital. That’s a preliminary indication from our life of mine plan. Madsen has that same potential. now only with even higher grade, we have a full shaft at Madsen that is currently functioning, it’s not dewatered to the bottom, but it’s dewatered two-thirds or three-quarters the way down.

We have fully permitted tailings pond. we have a fully functional mill, it’s relatively new although it’s only currently scheduled to produce or process at 500 tons a day. my expectation is, we probably want to expand that. But we want to stop here with our 1.25 million ounces and take a look at what it would cost us to put this in production, and how robust that opportunity might be. So that project will start later in the fourth quarter.

Lastly, there have been lots of changes to our staff at Seabee. And we need this in order to get better of what we do and also facilitate reasonable expansion to the operation. We have a great mix of experienced managers at site and you can see a list of them on page 15, if you are interested, Peter Longo and his staff have added five new professionals to our management team and they’re already having a significant impact.

Safety and environment have new leaders, supply chain management a new leader. we have a new Head of Technical Services highly experienced engineer and Kerry McNamara joined us after 20 years experienced with Goldcorp and Cameco as the Head of our Engineering and Projects department. these people will have a big impact on rationalizing our efforts and expenditures going forward and help ensure that we can deliver the significant shareholder value that we think exist in the company.

And lastly on page 16, just a quick outlook for the balance of the year, we are focusing on continuing to pursue best practices on safety, health and environment. and we’re doing I think a great job of beefing up our department there and pursuing best practices. We are focused on increasing production in unit operating costs at Seabee.

Firstly with some of the projects that are expected to bring our operating costs down, the shaft is a notable one. and secondly, by rationalizing our operation, we worked hard, everybody that meets our staff and sees our staff understands, we have very hard-working people. We can always better at what we do, and our ability to become more efficient and more productive will help to drive those costs down.

we are working with the mining consultants to help do that among other things. So we think there’s lots of opportunity there, and we’ll continue to focus on that, we’ve had huge success at Seabee on increasing reserves and resources in the Seabee camp. We doubled them in 12 months. We expect to increase the reserve portion of our 1.3 million ounce endowment, and we need to do that sustained ongoing increases in production.

Just as importantly, we demonstrated how much potential there was in the Seabee camp to expand as we call it the endowment in the camp. We’ve never had more than the 1.3 million ounces that we currently have and we expect there is lots of potential for us to continue to expand our reserves and resources there, and we will do that.

We’re at a point in time with Madsen where we can and will continue to do exploration work there, but it’s time for us to really set back and get in a good feel for what that Madsen project is capable of doing from a production point of view. We will do whatever we have to, our Madsen and the Amisk project to accelerate the value build in those two projects, and we don’t rule out any options, but we’re going to get a much better idea this year and through the first two months or two quarters of next year what both the Amisk and the Madsen project look like from an economic point of view.

So that’s a bit of a summary. Again watch for drill results out of both Madsen and the Gap coming in before the end of the year and the Gap resource update.

At this point, I’ll stop and take questions. I’m going to direct the questions to the respective Vice President that’s responsible for that area. So unless it’s a very general question, Peter Longo, Rick Johnson or Brian Skanderbeg will handle the questions. Thank you very much.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Kevin Chiew with CIBC. Your line is now open.

Neil McMililan

Go ahead Kevin.

Kevin Chiew – CIBC World Markets, Inc.

There are few questions, maybe just to start on the capital fund, I’m just wondering in terms of the outstanding debentures, how far we held those?

Neil McMililan

44 investors I think unless it has been some changing hands, I haven’t seen much, it does trade on the exchange. and so I’d say relatively tightly held.

Kevin Chiew – CIBC World Markets, Inc.

And then just in terms of any potential debt financing, would you look to do a similar structure with, debentures with the warrants attached?

Rick Johnson

I mean that that’s something we have looked on; we’ve had many different offers. We’ve had interests, only we have interest with hedged, unhedged productions, we’ve had interest with gold uptick and we have had offers for interests with an equity figure like a warrant.

Kevin Chiew – CIBC World Markets, Inc.

Okay.

Brian Skanderbeg

I guess it is something that we were worked out.

Peter Longo

Yeah. I can tell you on that front, just a summary, our expectation is for a company in our position, the cost of capital for us if we debt finance is going to be somewhere between 10% and 15% a year. I think we can see single-digit coupons on a fixed term facility, but typically in this market, there would be an equity suite there and that would come in the form of warrants. We haven’t ruled that out at all Kevin, but we do have some opportunities to put a debt facility in place without those equity kickers and we are pursuing that at this time.

Kevin Chiew – CIBC World Markets, Inc.

Okay. And then just maybe moving over to operations, I guess I was looking at the cost, and I guess given the grade that you guys have had in the quarter I thought it would come in slightly lower than where it was. Just curious to know just may be in terms of per ton, if you can break down the costs?

Neil McMillan

Sure, I have the per ton costs, we break them down in between if you want to get into the mining drilling services camp and amend that we are using right now. So for mining the cost per ton was $105 per ton, milling was $34, services was $24, camp was $7 per ton, and our unit cost were $14 per ton.

Kevin Chiew – CIBC World Markets, Inc.

And where did you kind of see the most of the increase for this quarter?

Rick Johnson

For the quarter, most of the increase came on the Seabee side came through mining. Our milling cost were up slightly as well too and I think that’s a result of a some what slight increase over Q2 and cost of whole Santoy tonnage was down to offset that. But generally our mining cost, I think Neil has mentioned, mining and services are salaries are the one that seems to be down the most.

Kevin Chiew – CIBC World Markets, Inc.

Right. And it looks likes you guys are starting to really into the L62s, I was just wondering, if you could kind of give us the sense of what kind of grade, do you beginning to see there?

Peter Longo

Yeah, Peter Longo here, L62 production will be in the fourth quarter. Grades we are looking that in the bottom half of the L62 or a little bit more than the average for the L62 deposit. So we’ll probably be in the five to six range.

Kevin Chiew – CIBC World Markets, Inc.

Okay. Then just relative to Q3, how should we I think Neil mentioned that grades would be down slightly just may be, if you add any further color on that?

Neil McMililan

For fourth quarter I mean most of the production will be straight balance between Seabee and Santoy, we’re seeing higher tonnage coming at Santoy, which does carry lower grade. But don't expect it to be significantly different than what we’ve seen throughout the rest of the year. An overall, we’re coming in our year and guidance in terms of six grams per ton, which matches our reserves number.

Kevin Chiew – CIBC World Markets, Inc.

Right, perfect, that's all from me guys, thanks.

Peter Longo

Thank you.

Operator

Our next question comes from Sam Crittenden with RBC Capital Markets. Your line is now open.

Sam Crittenden – RBC Capital Markets

Thanks and good morning everyone. Thanks for the update this morning. Just to follow up on the grade, so then in the quarter were you just into a higher grade zone at Seabee or did you raise the cut-off grade a little bit, or is it a combination of those?

Peter Longo

Peter Longo here in Q3, certainly we’re into some higher grade mining stocks from Seabee. And in the fourth quarter, we’ll see, we will get back down to more normal at Seabee. Santoy I mean each stock for each productionary will have natural fluctuations in grade, and we’re going to be aggressive in terms of looking at our cut-offs and looking at making sure that we’re making the best decisions of what ore, we’re bringing to our mill and what will lead to the high grade.

Sam Crittenden – RBC Capital Markets

So then, for 2013, is around six grams per ton, a safe assumption?

Peter Longo

That's our reserve grades and we don't see it drastically changing over the next year.

Sam Crittenden – RBC Capital Markets

Okay, and then on the costs side, so you mentioned you had about $105 a ton now, once the shaft is tied-in do you see that dropping substantially, and what sort of, what would that drop to?

Neil McMillan

Absolutely, once the shaft is done, we expect about $10 per ton decrease in our mining cost on Seabee.

Peter Longo

Yeah. roughly 10% of what we’ve been more exactly.

Sam Crittenden – RBC Capital Markets

Okay. And then one more in grades, so Santoy, I know the reserves or the reserves grade is about 6.6. Have you done any studies on what a mined grade would look like at the Santoy Gap, it’s really for that?

Peter Longo

It’s a little early and we’ve done some preliminary work on it, and all that, that’s telling us is, we need to do some more.

Sam Crittenden – RBC Capital Markets

Okay. And then on the winter resupply for this year, do you guys need any sort of significant equipment or is it going to be a lot less money this year just because you’ve sort of done your expansion now?

Peter Longo

We expect the winter resupply to be definitely not as big as it was in 2011. We don’t have any major equipment coming in, so we’re expecting a pretty moderate resupply season.

Sam Crittenden – RBC Capital Markets

Okay. Thanks guys, that’s helpful.

Operator

(Operator Instructions) Our next question comes from Joseph Hopper with Claude Resources. your line is open.

Joseph Hopper – Claude Resources Inc.

I think you said something about self-financing, if so, could you expand on it? And also those two high grades at Seabee, what is the length of those discoveries?

Peter Longo

Firstly, let me just address the issue about self-financing. Our objective clearly would be regenerating enough cash flow and particularly, free cash that we can finance all of the capital expansion necessary. And frankly, I think we’re within the reach of being able to do that over a five-year period. Now we’re extremely encouraged by the impact on our operation and our margins with the inclusion of Santoy Gap project into our production scenario. I did read a research report the other day and they said in the junior sector, they could only identify one company that they believe to add the capacity to self-finance its expansion. And that expansion was expected to be about 50%, and that was over a five-year period. So on any given year, you might get a little underwater, and then make it back up later. I believe we have the potential to be the second company on that list. And I think our potential expansion will be more than 50%. So it’s something we’re focused on. and in order to do that, we have to keep our unit costs down; we have to be rationale on how we apply our capital. And it comes right down and doing a good job of planning that out in the life of mine plan. I assume that two high-grade projects you’re talking about are Santoy Gap and L62.

Joseph Hopper – Claude Resources Inc.

Correct.

Peter Longo

And Brian can tell you what the respective lengths are.

Brian Skanderbeg

Just in terms of the strike rate, I’m assuming that’s what you’re asking. so Santoy Gap is approximately 750 meters in strike rate, L62, a much shorter strike rate on the order of 100 to 125 meters in strike rate. I think that’s the question you’re asking.

Joseph Hopper – Claude Resources Inc.

That’s correct. Thank you.

Operator

Our next question comes from Gene Hammen, a Private Investor. your line is open.

Unidentified Analyst

Well, thank you for taking the call and good results. I had a follow-up question on the Amisk property. the add-on that camp added last quarter was, talking about last quarter, who owned that previously, did they do any exploration on that project?

Peter Longo

The historic path of Amisk is Claude actually had an interest of 35% over the previous 10 years. About a year and a half ago, we consolidated that and formed a joint-venture with St. Eugene Mining wherein we are at 65% and they are at 35%. Earlier this year, we closed the transaction to acquire the remainder of the interest and bought St. Eugene out of the project. So that’s the history of ownership of the project, we currently own 100%.

Unidentified Analyst

And so I didn’t ask that correctly. I was talking about the portion to the west that was just added on.

Peter Longo

That was open ground. there was a single claim in that block that had expired. the majority of that ground was acquired by a staking.

Unidentified Analyst

And so there has been no previous exploration work completed on that new block?

Peter Longo

The historic work is being completed by over the last 50 years somewhat by Hudbay, any number of prospectors. there is historic drilling on those properties, I don’t feel that any company has approached that ground with an exploration model or a target like Amisk deposit as it sits and this is understood right now.

Unidentified Analyst

Okay, thank you. I noted somewhere around one of the lists, there was a mill expansion due this year. Has that been completed?

Peter Longo

Yes.

Unidentified Analyst

Okay. now as far as raising the money for next year, are we looking at gold hedges?

Peter Longo

Absolutely not, we have seen some facilities very inexpensive money that what require us to put forward sales on gold loans, gold hedges, and we at this point say absolutely not.

Unidentified Analyst

Okay, thank you.

Operator

There are no additional questions. Mr. Lepage, the call is yours.

Neil McMililan

Thank you very much everybody. Again it’s Neil McMillan, I appreciate you taking time to come on as you know we’re quite accessible, so if you have additional questions feel free to give us a call at the office or e-mail us through the website, and we’ll be happy to answer any additional questions.

Thanks for taking the time and hopefully we’ll have you back on the call again after year-end.

Operator

This concludes our conference call, you may now disconnect.

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