Goldcorp's CEO Discusses Q4 2012 Results - Earnings Call Transcript

 |  About: Goldcorp Inc. (GG)
by: SA Transcripts


Good morning, ladies and gentlemen. Welcome to the Goldcorp Incorporated 2012 fourth quarter and year-end conference call for Friday, February 15, 2013. Please be advised this call is being recorded.

I would now like to turn the meeting over to Mr. Jeff Wilhoit, Vice President, Investor Relations at Goldcorp. Please go ahead, Mr. Wilhoit.

Jeff Wilhoit

Thank you, and welcome everyone to the Goldcorp fourth quarter and year-end earnings conference call. Among the senior management in the room with me today are Chuck Jeannes, President and Chief Executive Officer, Lindsay Hall, Chief Financial Officer, and George Burns, Chief Operating Officer.

For those of you participating on the webcast, we have included a number of slides to support this morning's discussion. These slides are available on our website at

As a reminder, we will be discussing forward-looking information that involves unique risks concerning the business, operations, and financial performance and condition of Goldcorp. Forward-looking statements include, but are not limited to, statements with respect to future metal prices, the estimation of mineral reserves and resources, the timing and amount of estimated future production, cost of production, capital expenditures, and costs and timing of the development of new deposits.

Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause the actual results to be materially different from those expressed or implied by such forward-looking statements. Accordingly, you should not place undue reliance on forward-looking statements.

With that, I will now turn the call over to Chuck Jeannes, CEO of Goldcorp.

Charles Jeannes

Thanks Jeff, and thanks everyone for joining us today. When we last spoke about five weeks ago in conjunction with the issuance of our guidance and fourth quarter production, I mentioned the strong finish we had in 2012 and indeed the fourth quarter saw a new record for gold production at 700,400 ounces. This led to quarterly revenues of $1.4 billion and operating cash flow before working capital of $721 million. This was a result strong effort from most of the mines and particularly both Red Lake and Penasquito.

Gold grades at Red Lake drove a successful quarter and established a solid foundation for 2013. At Penasquito, all phases of the operation continued to improve and our confidence in the near-term water availability is increasing. We also believe that the water study underway will produce a solution that addresses our long-term needs for the Penasquito district. With the Pueblo Viejo joint venture achieving commercial production in January, the three linchpins of our 2013 performance are all headed in the right direction. Due to the board's confidence in the future of our business, we elected to increase the dividend for the fourth time in three years to $0.60 per share.

So turning to the 2012 highlights. Production for the year was 2.4 million ounces at all-in sustaining cash cost of $874 an ounce. As I mentioned in January, all-in sustaining cash cost is a new metric we are adopting this year as are many of our peers in the industry. We believe this provides a more complete picture of the actual cost of producing an ounce of gold by including cash costs, sustaining thing capital corporate G&A, exploration expense and reclamation costs.

Going forward, we will provide regular quarterly reporting on this metric in addition to our traditional reporting on cash costs as we transition to the new approach. As the World Gold Council continued its work toward adopting an all-in cost measure, we plan to conform to the industry standard.

Turning to the growth projects, we are extremely well positioned with the portfolio of high return and low capital intensity projects that will add significant shareholder value. This portfolio is the product of several very good acquisitions and our longstanding commitment to financial discipline. All three projects remain on schedule and saw significant advancement throughout the year.

So, as we start 2013, the growth is here. Pueblo Viejo drives approximately 10% production growth this year and Cerro Negro starts late this year and supplies additional growth in 2014. Then we round out with Eleonore starting late next year and Cochenour in the first half of 2015. The net result is outstanding 70% production growth over the five-year plan based on these well advanced construction projects.

During the year, Goldcorp's commitment to creating sustainable value for all stakeholders was underscored by our addition to the Dow Jones sustainability index North America, and we are proud of track record of working safely and responsibly in the communities where we operate.

As final highlight to 2012, we announced yesterday our ninth consecutive annual gold reserve increase driven by both, our newest and oldest asset. Drilling success throughout the year at Cerro Negro resulted in another significant increase in reserves, which have nearly tripled since the asset was purchased in 2010. We're early in the exploration efforts of this large land package and we expect significant additional reserve growth there for years to come.

Positive reserve increases were also turned in Marigold in Nevada and Porcupine in Timmins. Uncovering new value at these more mature assets is a testament to the overall quality of our exploration programs.

Increasing the amount of gold reserves that each of our shares represents is one of the most efficient ways of adding value for shareholders and we are proud of our track record of explorations success.

On a per-share basis, proven and probable gold reserves increased another 3.5% this year. It's important to point out that only about 24% of the reserve increase was due to increasing the reserve calculation price with the rest coming through the discovery of new ounces. And equally important is that we added reserves while maintaining our overall reserve grade. Testament to the fact that we are focused on maximizing not the overall number of ounces in reserves, but the value and quality of those ounces.

The 2015 guidance we presented in January shows double-digit increase in production, compared 2012 to between 2.55 million ounces to 2.8 million ounces of gold the somewhat wide production range based into account for ramp up at Pueblo Viejo in its first full year of production. This guidance reflects a rigorous risk management process implemented to more effectively assess the risks in our business. Risks are more fully quantified and probability weighted to derive a range. We believe the result of these efforts is a forecast that properly challenges are sized to be their best, but also provides them the framework to succeed. With this new framework comes a major opportunity for our mine leadership teams to pursuit improvements in their business that go well beyond simply producing ounces. This process, which we are calling Operating for Excellence sees to identify and unlock value that exist throughout the organization in the form of greater efficiency, productivity and ultimately cost management. We look forward to sharing our progress with all of you on this initiative throughout the year.

The other point to be made with respect to our guidance on costs, we are most certainly looking at a high watermark our costs in 2013 compared to the rest of five-year plan due to both, Penasquito and Alumbrera working through planned low-grade cycles this year. With our three growth projects under construction making strong advances this year 2013 is also likely to be a high watermark in terms of capital spending at a forecast $2.8 billion.

This spending plan places us on a clear path towards free cash flow in 2014 and beyond. The five-year guidance we presented in January shows our project pipeline is expected to drive an approximate 70% growth in production to between 4 million and 4.2 million ounces. These are quality ounces, the addition of which will lower our overall cash cost.

As you can see our dividend has increased 233% from 2009 from an annual dividend of $0.18 per share to $0.60 per share. Our focus has always been on creating shareholder value and I believe we can continue to balance investing in our growth profile while at the same time providing a meaningful dividend to our shareholders.

In closing, this call is necessarily about reporting on our 2012 performance but the real excitement lies ahead of us. We have worked out the challenges of 2012 and I am confident that our current path will lead us towards increasing shareholder value. Our long-term strategy remains sound combining current low-cost operations with new high quality growth projects supported by an outstanding net cash balance sheet and little overall geopolitical risk. So no revamping of our strategy is needed. Instead our focus is squarely on execution, delivering value by meeting forecasts, containing costs and delivering our growth projects as planned. That’s exactly what we plan to and I look forward to updating you on our success over the course of the year.

With that I will turn the call over to George.

George Burns

The key takeaways from the fourth quarter from an operational perspective are that Red Lake and Penasquito finished strong and the work completed last year provides a solid foundation for the future. In addition, Pueblo Viejo is on track to meet our expectations in 2013. These developments, when coupled with the stable overall mine portfolio underscore our confidence in executing successfully to our plan.

Working with our mining project teams, I am excited by the many opportunities we have to add value by focusing on innovation, automation, efficiency and productivity improvement. Our operating for excellence culture will reduce cost by harnessing our highly engaged workforce to identify and prioritize opportunities, plan the required changes and then execute and sustain the improvement. I am passionate about creating value from continuous improvement throughout my career and the increased focus of my operating team going forward has me confident and excited.

Gold production in the fourth quarter reached a record 700,400 ounces, an increase of 18% over the third quarter driven by strength at most of our mines including Red Lake and Penasquito, Los Filos and Porcupine. At Porcupine, production was 74,100 ounces in the fourth quarter for a total of 262,800 ounces for the year. The increase was driven by higher grades over the prior quarter. Los Filos production for the quarter was 92,800 ounces which is led by a record year of production of 340,400 ounces. This resulted from higher ore process.

Chuck has mentioned our success in growing gold reserves again this year and I will include some of the relevant information around continued exploration success as I review the portfolio in more detail. At Red Lake, fourth quarter production totaled 168,300 ounces and 507,700 ounces for the year. Following the completion of de-stressing the 45 level in the third quarter, stope availability and mine headings in the high grade zone resulted in particularly high grade in fourth quarter showing once again the exceptional strength of this ore body.

During 2013, at Red Lake there is only one destress slot at the 46, 47 level, which is expected to be completed in the second half. The majority of the production forecast for 2013 is not contingent on the completion of this destress slot. Production for the year is expected between 475,000 to 510,000 ounces. On the exploration front, the NXT Zone discovery in 2012, also potential to enhance operational flexibility at Red Lake over the next several years.

We reported a small initial gold resource this year and drilling in 2013 will focus on expanding this resource. Five drills will continue to define and extend the zone above into the West of the 54 level with the objective of this year of identifying the up-plunge extents. Construction is progressing on an exploration drift at the 47 level with expected completion by the end of the first quarter in 2013 that will provide a platform to increase drill density for conversion of resources to reserves. In addition to the NXT Zone drilling also confirmed the extension of our High Grade Zone between 52 and 57 levels.

In 2013, the focus will be on infill drilling between 48 and 55 levels that convert resources to reserves. We will also follow up on a new discovered structure at the bottom of the 4699 ramp.

At Penasquito, fourth quarter gold production totaled 112,900 ounces at a total cash cost of $17 per ounce. As expected, production decreased from the third quarter as we commenced mining in a lower grade portion of the pit which will continue through the first half of this year.

Mill throughput averaged 99,000 tonnes per day during the quarter. Throughput is expected to increase to an average of the 105,000 tonnes per day in 2013 as we are bringing additional water wells in production within the Cedros Basin in addition to new dewatering wells within Chile Colorado pit. This is expected to result in gold production of between 360,000 to 400,000 ounces for the year.

A water and tailings management studies are underway and on track for completion in the first half of 2013, a study is investigating a combination of new long-term water sources as well as opportunities to conserve water to determine the most cost-effective solution of all operating increase in design throughput. The study is advancing and we look forward to updating you in the near future.

We also continue to look for ways to increase efficiencies and reduce costs at site. One such project has been the Waste Rock Overland Conveyor, where construction is now complete and we are in the pre-commissioning phase with ramp-up expected during the second half of 2013.

The team has identified numerous other opportunities to enhance efficiencies at site. Reserves at Penasquito decreased to 15.7 million gold ounces consistent with depletion. With the core Penasquito deposit well defined, the exploration focus in 2013 is a on testing deep strong material relating to copper mineralization and adjacent to the current open pit,

Preliminary results show that the sulfide horizons contained copper, zinc, gold and silver. Other field in the Penasquito district, Camino Rojo project saw the successful conversion of resources to reserves of 1.6 million ounces of gold. It is important to point out that these reserves comprised the oxide heap leach project only and do not take into account the growing sulfide opportunity at depth.

Our newest producing asset, Pueblo Viejo produced 43,700 ounces to our account in quarter. The ramp up is progressing towards full capacity in the second half of this year. Following modifications to the first autoclave the team insiders commenced implementing modifications to remaining three autoclaves, which are expected to be complete in the first half of 2013.

Production for the year is expected between 330,000 and 435,000 ounce on a 40% basis. The power plant which will provide a stable energy to the site is anticipated to commence operations in 2013 also.

Turning to Cerro Negro, the future of this robust project is getting closer. Construction and development is advancing towards first gold at the end of this year, progress on planned construction included completing excavations, large concrete pours for building foundations, based and walls. I am really pleased by the underground operating team, which is consistently executing for underground development plans.

The Eureka decline now has advanced to 2,100 meters out of a total of 3,900 meters. The ore stockpile from Eureka now contains 40,300 tonnes and an expected grade of 11.1 grams per tonne gold and 204 g per tonne silver with expected stope production in the first half of this year.

Ramp development in Mariana Central and Mariana Norte veins is also progressing on schedule. I think the press release stated that detail engineering was 55% complete but it is actually 88% complete and the ball mill and related equipment are on site. We increased our reserves significantly and we will continue with another strong exploration program during 2013 that will focus on further extending the Mariana Central, Mariana Norte and San Marcos veins to the East and drill testing of other vein targets. Here you can see the first steel going up on the mill building a few weeks ago, which will advance quickly now that we have the majority of the key concrete work complete.

At Eleonore, the Gaumond's exploration shaft was completed and is now going through the conversion from sinking to operating mode with completion expected this quarter. Once completed it will enable mine development from the 650 meter level and acceleration of diamond drilling activities at depth. Engineering, procurement and construction management is now at 44%. The exploration ramp has extended over 2,500 m with four drills conducting definition of exploration drilling from strategic working platforms in the ramp.

Underground exploration drilling will accelerate in 2013, enabling further definition drilling of the deep portion of the Roberto deposit. Following completion of further work of mine planning and initial development, the capital estimate has been confirmed at $1.75 billion.

Construction continues to advance at Cochenour in the Red Lake district. The haulage drift is now 68% complete and final completion is expected in the first quarter of 2014. First gold is expected in the first half of 2015 as a study of the overall project concluded that the Bruce channel ore body is lower than previously expected which will require the deepening of the shaft by an additional 245 meters.

Overall I am pleased how we finished the year and confident about the year ahead. After five months in my new role, I am really excited about my team executing our business plan that is founded on are highly engaged employees, a strong foundation of operating mines and several high-quality, low-cost projects are advancing quickly towards production.

With that I will now turn it over to Lindsay for the financial review.

Lindsay Hall

Thanks George. Building on the third quarter momentum, the fourth quarter closed with strong production of some 700,000 ounces of gold. We reported revenues of $1.4 billion during the quarter, resulting in full year 2012 revenues of over $5.4 billion of which 87% results form selling precious metals, 2.3 million ounces of gold and 31 million ounces of silver.

Operating cash flow before working capital changes increased to $721 million in the fourth quarter, resulting in full year operating cash flows of some $2.4 billion. $719 million was invested in our operations and capital projects this quarter, resulting in a full year total investment in our operating and capital project of $2.6 billion, right in line with the guidance we gave at the beginning of 2012.

Our average realized price per ounce of gold sold in the fourth quarter was $1,692. While our all-in sustaining cash cost were $910 per gold ounce, resulting in all-in sustaining gross margin of 46%. On a full year basis, our average realized price per ounce of gold sold was $1,672. All-in sustaining cash cost were $874 resulting in all-in sustaining gross margin of 48%.

By-product cash cost increased to $360 per ounce in Q4 from $220 per ounce in Q3, primarily due to lower by-product sales credits at Alumbrera as a result of a lower sales volume in Q4. As you will recall, during Q3, Alumbrera sold most of its Q2 production in Q3. On a full year basis, by-product cash cost increased to $300 per ounce compared to $223 per ounce in 2011, primarily due to increases in production cost experienced industry-wide. All-in, sustaining cash cost for the fourth quarter and full year 2012 were $910 and $874 per gold ounce, respectively, and include by-product cash cost sustaining capital, corporate administrative expenses, reclamation cost accretion and exploration expense.

On the webcast slide, we have included some additional details as to the breakdown in 2012 operating cost per ounce of $300, which is included in the all-in sustaining cash cost number of $874.

As you can see, labor cost is approximately 30% of the $300 per ounce. As the all-in sustaining cash cost measure seeks to reflect the total cost of gold production from current operations, new project capital is not included in the calculation. The details of this calculation are disclosed on page two of our NDA.

Reported net earnings for the fourth quarter amounted to $504 million compared to $498 million in the prior quarter and for the full year $1.8 billion compared to $1.9 billion in 2011. Our adjusted net earnings for the quarter increased to $465 million, or $0.57 per share compared to $441 million or $0.54 per share in the prior quarter.

To calculate the adjusted net earnings, we adjusted our reported net earnings of $504 million by deducting the non-cash derivative gains $128 million, primarily associated with our convertible notes and adding back revisions in estimates on the reclamation and closure costs of the company's inactive and closed mine sites of $60 million.

As always we also review the items the non-cash foreign exchange losses on the translation of deferred income tax assets and liabilities of $22 million from the booked tax provision. The detailed calculation of our adjusted net earnings is disclosed on pages 45 and 46 of our MD&A. Consistent with the previous quarters, we did not make any adjustment for non-cash share-based compensation expense which amounted to $10 million or $0.01 per share.

The income tax provision included in our calculated adjusted earnings for the fourth quarter, an implied effective tax rate of 25%. For the most part, we calculate this effective rate, the book tax provision of 149 million for the quarter is adjusted for the foreign exchange losses on deferred taxes, 22 million as well as the tax impacted revisions in estimates on the reclamation and closure costs other index of sites of $24 million.

The earnings before tax of $653 million is also adjusted to remove the impacts of the share-based compensation expense of $10 million, the 122 million of net mark-to-market gains, primarily from the convertible note, representing permanent differences as these items will never be taxable and $84 million related to the revision in estimates on the reclamation and closure cost of the company's inactive mine sites.

Compared to our 2012 guidance of 28% the actual effective tax rate during quarter reflects the positive impact that Mexican inflation had our tax volumes. Adjusted net earnings for 2012 was $1.6 billion, or $2.03 per share compared to $1.8 billion, or $2.22 per share in 2011. Compared to 2011, adjusted net earnings were impacted by higher production cost, partially offset by higher by-product sales revenues, resulting from higher sales volumes.

Turning to provisional pricing, the impact of Penasquito in the fourth quarter was a negative $20 million compared to a positive $4 million in the prior quarter, reflecting lower metal prices realized in the fourth quarter. At the end of the fourth quarter 2012, and you've seen the provisional pricing volume will reflect 52,400 ounces of gold priced at $1,664 per ounce, 2.7 million ounces of silver priced at $29.95 per ounce $16.8 million pounds of lead price of $6 to account and 43.2 million pounds of zinc priced at $0.92 per pound subject to the two-month provisional pricing career.

Alumbrera was also impacted by negative provisional pricing of 4 million compared to a positive $6 million in the prior quarter mainly due to lower realized copper prices and at the end of the fourth quarter we had 34.8 million pounds of copper priced at $3.50 per pound.

The company generated operating cash flows before working capital in the fourth quarter of $721 million or $0.89 per share, an increase of $34 million when compared to $687 million or $0.85 per share in the third quarter. After changes on working capital amounts, operating cash flows are positively impact the settlement fourth quarter accounts receivable related to the resumption of sales in the third quarter at Alumbrera.

As progress continued at our capital projects, we made capital investments of some $719 million during the quarter, approximately $228 million in our operating mines and $491 million at our growth projects. Included in the $491 million spend, is a $119 million at Pueblo Viejo, $134 million at Cerro Negro, $186 million at Eleonore and $28 million at El Morro and lastly $24 million at Cochenour.

Lastly, I am happy to report that both year was $900 million in cash. This, in conjunction with our undrawn $2 billion revolving credit facility provides us with great liquidity and supports our strong investment grade balance sheet.

With that, I will turn it back over to the operator. John, for questions.

Question-and-Answer Session


(Operator Instructions) First question is from John Bridges from JPMorgan. Please go ahead.

John Bridges - JPMorgan

Thanks, Chuck and everybody. Well, congratulations on the results there. It is quite difficult to find things to ask questions until last night. Everything look nice. But one thing was intriguing was the use of $1,350 gold price in your reserve calculation. I wonder if Charlie was holding something back there?

Charles Jeannes

Sorry, I didn’t understand.

John Bridges - JPMorgan

The gold prices that you used to calculate your results, $1,350? some of the other guys are using the maximum, the $1,500.

Charles Jeannes

Well, this is consistent with the way we are trying to run the business and being disciplined and not trying to maximize the last ounce we can, either in our reserve calculation or production but to go after calling ounces. So. I don’t think it's any differently if you look at the way we compared in terms of our long-term price assumptions in the past and actual spot prices. We are in right around the same range as have been. So for us, there hasn’t been any change there, John.

John Bridges - JPMorgan

Okay, great, and then following on from that and topical for today. There is a little bearish commentary, Chuck around in the market. Just wondered if you could talk about contingency plans if gold were to fall off sharply. I know you guys have an ongoing contingency plan in having low-cost operations but what should we expect from the industry as low prices continue?

Charles Jeannes

Well, I can only speak for us. I could certainly tell you that we sensitize everything we do looking at what would be the impact of lower sustained prices. I think that’s the key. I said earlier this year a couple times that it wouldn’t surprise me to see some volatility in the gold price and to see some weakness in fact because I believe there is some ways some artificial exuberance about international economic activity right now that is not likely to last throughout the course of the year.

For example, we look at our reserves down to $1,200 and you would see about 6% decrease only in reserves at $1,000. The go down around 15%. So certainly not something that’s significant. I think overall, as I said, I don’t expect this current weakness to continue. I am still very much a believer in the long term trend in the gold price and it seems to me that all of the macroeconomic factors that have supported that continue very much in place, if not even more so than they have been in the past in terms of the debt levels for countries around the world, the likelihood of inflation down the road or at a minimum of the base in currency.

So, yes, I can't say what other folks would do but we are very comfortable that the business will run quite well even at lower prices although we don’t expect it to be sustained.

John Bridges - JPMorgan

Okay, great. Well done, guys. Congratulations.

Charles Jeannes

Thanks, John


Thank you. The next question is from Jorge Beristain from Deutsche Bank. Please go ahead.

Jorge Beristain - Deutsche Bank

Hi, guys. I guess my question is for Chuck. We have seen some notable announcements in the gold space and mining space in general about the potential for slimming down of portfolios and in that environment would we be right to consider Goldcorp a potential buyer of assets if in fact there is more willing sellers out there?

Charles Jeannes

While we are always on the lookout for opportunities as you know have a pretty active corporate development department and I think we've made, as I said during my prepared remarks, some pretty solid acquisitions that are now in the process of adding real value to us in terms of Cerro Negro and Eleonore and Cochenour, and so yeah we'll keep our eyes on things. I can say it's a general matter. The things that others tend to want to dispose on would probably not be realized on our list. There are things that we would like to buy, but we will look at opportunities that are presented.

Jorge Beristain - Deutsche Bank

Then just as a follow up to that, could you talk a little bit about the quality if you have noted that from your development department of the bid/ask spread out there it would seem that the market is not attributing a lot of value to companies that are now saying they might be selling assets and I am just trying to understand if you are seeing a real widening of the bid/ask spread there or if assets you said are maybe [what the is at high] quality to generate interest.

Charles Jeannes

Yes. It's hard for me to say, because I don't know what people are seeing in terms of the various bids for their assets. That is the process that to the extent we are involved, which is very limited, we are only seeing one side of that discussion, so you would have to ask that posters selling the asset.

Jorge Beristain - Deutsche Bank

Okay. Fair enough thanks.


Thank you. The question is from Patrick Chidley from HSBC Securities. Please go ahead.

Patrick Chidley - HSBC Securities

Hi, everybody. Just a quick question on your developments down in Argentina, I was wondering what's impact you are having or seeing from inflation in Argentina there and why you see Argentinean inflation right now?

George Burns

Hi, Patrick, as we said in January, we were disappointed to have a pretty significant increase in capital cost at Cerro Negro and the large majority of that increase came from what we call Argentina factors or local factors that was the inflation rate and which was running in the range of 25% and the other side of it was the difficulty of importing equipment and materials into the country and the cost and times delay that that added to us, but the good news is that we've managed those issues and our numbers that we provided you assume continued inflation without any meaningful reduction in the exchange rate or adjustment in the exchange rate, so eventually there has got to be some corresponding devaluation of the peso and we haven't seen that yet. And otherwise the guys are doing a very good job of managing and advancing the project and things are going quite well, but it is a challenging environment.

Patrick Chidley - HSBC Securities

Thanks. Any impact on Alumbrera?

Charles Jeannes

Yes, but it's the inflation rate and so you've seen some movement in the cost at Alumbrera. I do not actually have breakdown as to the difference between the inflationary factor in fact it is mind just getting deeper and that you got to move rock further than you did before, but as you can see Alumbrera continues to be a very strong cash going asset and so it as well has managed those impacts.

Patrick Chidley - HSBC Securities

Okay. Thanks.


Thank you. The next question is from Alec Kodatsky from CIBC. Please go ahead.

Alec Kodatsky - CIBC

Thanks. Good afternoon. Maybe just to fill in a few holes, a few questions, but just going back to I think good afternoon just weeks, pupils a few questions but am just going back to Cerro Negro you noted that you are still looking for government approval in the power line towards the end of March. Just sort of curious sort of the of genesis of that approval and does it require approval by March or is there a longer timeline behind that before you actually need the power?

George Burns

This is George. Yes. We've got a few months to get the power line started to be consistent with our start up at the end of the year. we are comfortable with the permit process, but that is going to be changed.

Alec Kodatsky - CIBC

I guess probably another question for George just maybe an update in terms of how the refurbishment of autoclaves are going at PV? I know its only been a month since we last talked but any insight there is helpful.

Charles Jeannes

Sure. The first autoclave, the retrofits are working well and that gives us confidence that our guidance and our plans for the years is intact. The second autoclave, the retrofits have been completed and that line will be starting up within a week. We are on track to get the last two autoclaves completed in the first half of the year. So things are looking well.

Alec Kodatsky - CIBC

Then probably a question for Lindsay. It seems the number of different definitions for expenditures and just wanted to clarify where you are placing capitalized stripping and development? Would that be in a sustaining bucket? Or is that in the project capital and other bucket?

Lindsay Hall

In sustaining, Alec.

Alec Kodatsky - CIBC

Okay. I would hope so but just wanted to check.

Lindsay Hall

It is like just following on that, Alec. I mean that’s one of our real reasons for adopting the all-in cost measure, is that stripping and development work at our mines is a real cash outlay every year and it should be counted, and it should be paid just as much attention to in our internal work and externally as the operating costs are. So, yes, they are definitely included.

Alec Kodatsky - CIBC

Okay, no, its just a clarification. I do appreciate that. Thanks.

Lindsay Hall

That's all?

Alec Kodatsky - CIBC

Yes, I am all done. Thanks.


Thank you. We have a question from Steve Butler from Canaccord Genuity. Please go ahead.

Steve Butler - Canaccord Genuity

Hello, good afternoon, guys. It was a wonderful Q4 to see 27 odd grams per ton, Chuck. That annualized at ridiculous 670,000 ounces a year but question for you guys as to whether Q4 was a particularly obviously very heavy high-grade zone quarter and perhaps it was on a run rate overly influential in the quarter. Would that be a reasonable assumption?

Charles Jeannes

Perhaps I would let you talk to George in a minute but as you know, Red Lake has variability based on grade and at times you are in a low-grade area of the high-grade zone or lower grade. Other times you get into some really nice stopes. So that was the case in the fourth quarter which, as George said, continues to show what an outstanding deposit it is. But I will pass it to him.

George Burns

Hi, Steve. The first half of the year, one of the impact we have was the destress slot timing and our ability to get into some of these high grade stopes. So by getting all that work completed in the third quarter really opened up the mine in the high-grade zone and that flushed out some of the production in higher grade fourth quarter. So, yes, it was a really strong quarter. As I said, Red Lake is an exceptional mine and we expect to see quarters in the future like that again. We are comparable with our guidance for the year.

Steve Butler - Canaccord Genuity

All right, okay. That’s good, that’s fine. Then, Chuck on your opening remarks somewhat, you talked a bit about your confidence towards creating and finding long-term solutions to the water and tailings water program management, if you will. Maybe what gives you that confidence? I am assuming your studies are not, perhaps, even nearing completion, you talked about it being delivered by the first half and so maybe if you could give us a bit more color there, if you don’t mind, unless we have to wait for the study?

Charles Jeannes

Well, you do. The great thing about being CEO is I get to make broad statements about how things are going well and then George gets to explain them. So I am going to pass that over.

George Burns

Yes, Steve. I mean one of the confidence issues is that we have been expanding the well field on the property we control currently and as we have completed those wells and understand the water that will be delivered are confident and our guidance this year has increased. So I am feeling a lot better about things now than I was three months ago just due to that success. In terms of a longer-term plan, both the studies advancing, we are on track, in terms of timing and we will work on our way through finishing the study and drawing our conclusions. So for that you are going to have to stay tuned.

Steve Butler - Canaccord Genuity

Okay, thanks guys.

Charles Jeannes

Thanks, Steve.


Thank you. We have no further questions. I would like to turn the meeting back over to Mr. Jeff.

Jeff Wilhoit

Okay, thanks everyone. We certainly appreciate that we just spoke to you for a little while ago about these issues. So what thanks for the questions we did have and thanks for joining us today. As you heard from all of us, we are quite excited about the year ahead and we look forward to updating you on our progress on our first quarter conference call. So have a good weekend. Thanks.


Thank you. The conference call has now ended. Please disconnect your lines at this time. Thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!