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Allied Nevada Gold (NYSEMKT:ANV)

2012 Earnings Call

February 25, 2013 9:00 am ET

Executives

Theresa M. Thom - Vice President of Investor Relations

Scott A. Caldwell - Chief Executive Officer, President and Director

Stephen M. Jones - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Steven Butler - Canaccord Genuity, Research Division

Marc Heilweil - Spectrum Advisory Services, Inc.

Chitimukulu Musonda - CIBC World Markets Inc., Research Division

Zachary Zolnierz

Mike Kozak - Cormark Securities Inc., Research Division

Trevor Turnbull - Scotiabank Global Banking and Markets, Research Division

Jared M. Levin - A.R. Schmeidler & Co., Inc.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Allied Nevada 2012 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Monday, February 25, 2013, at 9:00 a.m. Eastern time. And I would now like to turn the conference over to Tracey Thom, VP, Investor Relations. Please go ahead.

Theresa M. Thom

Thank you very much. Good morning, everyone. We appreciate you joining us this morning. On the call today, Scott Caldwell, President and CEO; and Steve Jones, Executive Vice President and CFO, will discuss the 2012 financial results that were released this morning before market. In addition, we'll be discussing the results of the updated mine plan that were issued on Friday last week. Both press releases can be found on our website. As mentioned, the call will be followed by a question-and-answer session.

Before we begin, please note that we may make certain statements which contain forward-looking information during this call. Please see our cautionary statements in regard -- regarding forward-looking information contained in our press releases and on our website.

I'll now turn the call over to Scott Caldwell.

Scott A. Caldwell

Thank you, Tracey. Good morning, everybody. Thanks for spending a few minutes with us this morning. I'll start by talking about 2012 and a little bit about the first quarter, and then a little on the 43-101 or the revised mine plan that just came out.

First off, on the health safety and environmental front, which is a key metric for us and for anybody in the mining business, is that we've now gone about 6 months without significant accidents on either the construction or operations side and no environmental incidents, and that's despite our workforce, that's including construction, doubling. We now got about approximately 650 people on the payroll, including contractors involved in construction.

Talking about the year, our cash costs were higher than the previous year, at about $6.38 an ounce. Those will -- that sort of cost trend will continue in the 600s into this quarter as we work our way through some high inventories. We did have a record production for us for the quarter and for the year, however, disappointed on the -- on what we thought we were going to do and certainly, things are turning around in the first quarter. We have the first quarter, year-to-date. We've mined about 6 million tons of ore, containing 60,000-plus ounces of gold and 500,000 ounces of silver. And we've produced and sold 24,000 ounces of gold and about 140,000 ounces of silver.

Production in January was adversely impacted by very, very cold winter both in December and January, but January is the quarter we're talking about. One of the coldest winters in recent history there in northern Nevada, but things have warmed up, back to normal temperatures and we're starting to get our solution flows back up. Cold weather on the heap leach was adversely affecting how much solution we can pump, therefore gold we can make, but we're beyond that now and production is looking pretty good. We're on track to produce and sell between 45,000 and 50,000 ounces of gold.

One other thing that we're working on that will help this quarter slightly, but also Q2 was we've added -- we're in the process of adding 2 new carbon columns that will allow us to process 100% of our flows, which is about a 40% increase in processing capability, and therefore will result in about 40% increase in gold production on a daily basis or quarterly. Things are on track to hit our quarter milestones of 45,000 to 50,000 ounces.

Exploration activity. Hycroft, we drilled, oh, about 250,000 feet or 265 holes. Primarily the first part of the drilling was directed towards engineering work, I'll call it, whether that be metallurgical sampling. In the second half of the year, the drilling was dedicated to resource development and resource expansion inside the pit, a conversion of inferred material into M&I and hence, P&P. That -- the bulk of that drilling was not the second half, so about half of that drilling was not included in this resource update. We intend to do a mid-year resource update and it will include that drilling plus some other drilling. The drilling focused on engineering and resource inside the pit, not expansion drilling to the south. We know it's open. We know where the ore is. Just don't see any reason to expand the resource at this stage of the game.

Hycroft expansion. Starting with current capital spending, we're really excited about this. First, the capital plan still is holding solid at 1.24 billion. That's for the mill and the heap leach expansion, fixed and mobile equipment, rails [ph], dam, et cetera. To date, we've completed or purchased/have contracts in place, firm agreements of $634 million or about 51% of the total capital budget, and they're coming in at about 5% of our original estimate. Bottom line is contingency. That's where we're putting this. Underage [ph] has increased to $97 million or about 16% of the remaining capital will be committed at $608 million.

But every day, we get closer and closer to finalizing this thing. We won't have the final bid [ph] packages back, not to succeed -- not to exceed bids until the second half or -- it goes out in March so we should have it in April or so, and then we'll update this number again. We update it on a monthly basis for what commitments we have, but we're waiting on those bid packages to -- I call it the installation costs. It's to install the mills.

So things are looking pretty good on the capital front. Management still believes that we can fund this expansion with the cash on hand, operating cash flow and an undrawn line of credit, plus our capital lease financing on the mobile equipment. So we see that things are going pretty well. Lots of options out there. If we did need cash, we could perhaps do a silver stream sale, some things like that or additional debt. We're not looking at equity.

The last thing I'm going to talk about, excuse me, is the sort of a little summary on the 43-101, and that report will be filed by the end of next week in detail. So at that point, you'll see the annual production profiles, et cetera, et cetera. But just the highlights. The mills start-up in Q1 2015. Reserve is essentially flat; a slight decline on gold ounces, an increase in silver. Sitting at right around 12 million ounces of gold and 510 million ounces of silver.

And significant improvements. We reduced the mining rate, and I'm talking tons per year here, short tons per annum from 235,000 to 190,000. The strip ratio declined by 1.15. On the negative side, the mining cost are up by about 28% and the milling cost are flat so net-net is, if you want to look at it, the overall cost structure, went up slightly. Our recoveries are about the same, but it's a good solid plan. The CapEx, again, has not changed. If you look at the adjusted cash cost, that's using silver as a byproduct credit for the 10-year horizon from '15 through '24, it's sitting [ph] around a dollar -- $146 per ounce.

So those are kind of the summary notes on that study and of course, we're -- we'll try and answer any questions. We can answer any questions today. But again, the tech report will be out no later than next Friday so the first week of March, and then you'll be able to see all the detail that you might need.

With that, I think I'll hand it over to Steve and Steve will go through the financials.

Stephen M. Jones

Thank you, Scott. Just want to highlight a few things on our financials, starting with the cash balance. We ended the year with $347 million in cash. We spent, during the quarter, about $120 million on the expansion. A lot of costs related to the SAG ball and regrind mill and motors. We continue with the mill excavation. We should have that completed here in the next month or so. Crusher, we spent a lot of money on the crusher. You'll see -- if you look on our website, you can see some recent pictures of the crusher installation, also on the north heap. And we started in the fourth quarter the new Merrill-Crowe plant.

Also on the balance sheet, you'll note we have a receivable of $60 million. That results from the sale of gold on carbon in the third and fourth quarter, as well as we sold some precip in the fourth quarter, and we'll talk about those in more detail in a minute. We do expect to collect about $23 million in the first quarter and the remainder of that receivable balance in the second quarter.

If you look at total ore on leach pads, that is both current and noncurrent, it grew by about $19 million during the quarter as we placed almost 15 million tons of ore on the pads during the quarter, almost half of the total tons of ore placed during the year. Importantly, if you look at Footnote 4 in our 10-K, which we filed this morning, you'll note that the cost per ounce of gold went from $969 in the third quarter to $815 in the fourth, a decline of $154 an ounce, and that's $9 lower than with what we started the year at. We had a very good quarter in terms of costs and again, I'll go through those in detail here in a minute. We also mined about 1.8 million tons of mill ore during the quarter and that's sitting on the balance sheet at $475 an ounce.

From a liability side, our total capital leases increased by a net $24 million. We now have total capital leases of $123.2 million. During the quarter, we added 4 930E Komatsu haul trucks, 2 of the CAT 795 350-ton haul trucks and a lube truck, as well as we had principal repayments of $5.7 million. For the net, 24.1.

Now, to talk about the quarterly financials. If you look at the press release, we outlined in some detail and then in the 10-K, obviously, we go through great detail about the year end numbers, but I thought I'd take advantage of this call and just talk about the quarter sum [ph]. Revenues for the quarter were $76.8 million. That's $12 million greater than the last quarter, and it's $40 million more than fourth quarter of '11. If you look at gold, gold revenues were $70 million, up $10.7 million from the third quarter. We sold 41,745 ounces at an average realized price of $1,678 an ounce. That compares with prior quarter sales of 34,851 ounces and fourth quarter '11 sales of 19,586 ounces. So record quarter for us in terms of sales.

On the silver side. Silver revenues were $6.8 million, an increase of $1.3 million from the prior quarter on the strength of 214,900 ounces at an average realized price of $32. Overall, for gold and silver sales -- I mentioned the carbon and precip. During the fourth quarter, we did sell some carbon with 9,450 ounces of gold and we sold precip, 10,250 ounces of gold. Now the precip that we sold in the fourth quarter, we had such high solution flows going through the Merrill-Crowe plant that our retort couldn't keep up with all the precip that we were making. We have subsequently added a second retort in January so you won't see any precip sales going forward. That second retort's been up and operating now for almost a month, but we did sell during the fourth quarter some precip and that's -- it's sitting there in that receivable balance. Overall, in the fourth quarter, selling costs related to the carbon and precip were $2.4 million or about $57 an ounce spread over the entire 41,000 ounces of sales.

During the fourth quarter, our adjusted cash cost per ounce was about $694. That compares to $690 in the prior quarter. Again, we had the abnormal selling costs that I just mentioned. Also, we did have a high inventory cost build up earlier in the year when we were stripping at a ratio of 1.4:1, and we talked about that on the prior call. I think important thing to point out is that our cash cost per recoverable ounce placed during the quarter -- so that is cash costs, which are our mining costs, our processing costs and our G&A site costs per recoverable ounce placed was only $565 an ounce. That's before you consider silver as a byproduct credit. When you consider silver as a byproduct credit, it's $163 an ounce. So cash costs per recoverable ounce placed net of the byproduct credit is just over $400 an ounce. So again, we had a very effective, very efficient fourth quarter, and that will bode well as we move forward into 2013.

Exploration costs for the quarter were $2.2 million, resulting in $7.4 million for the year. As noted in the press release, we're looking to spend a similar amount or about $7.5 million in 2013. We recorded net interest expense for the quarter of $5.8 million, which means we capitalized about $3.8 million so we had pre-tax income of $22 million.

Our overall effective rate for the year was 25.6%. We had been accruing for the year at 25% such that the fourth quarter effective rate is 26.75% or $5.9 million. Thus, for the quarter, we had net income of $16.1 million or $0.18 a share. And overall for the year, net income was $47.7 million, $0.53 a share on a basic earnings per share calculation, $0.52 fully diluted.

We did not generate cash flow from ops during the year, primarily as a result of the $60 million receivable that I've already discussed. Just -- obviously, this will be collected in 2013 and add to that -- add to the cash flow from operations we expect to generate in 2013. If you look closely at the cash generated from operating activities prior to changes in operating assets and liabilities, or effectively, working capital, we actually generated over $85 million. Thus, if you -- when the receivable and the increase in the ore on leach pads that I just spoke to are considered, net-net, we did not generate cash flow from operations.

As Scott just mentioned, we're bringing new carbon columns in such that we can process all of our flows later in the year. In August, we're expected to bring up the new Merrill-Crowe plant and the combination of those 2 -- we won't be limited at all by plant capacity and thus, we'll be able to begin reducing the inventory that we've built up with the solution stacking that we've been doing to date. Overall, we expect to generate in 2013 $150 million or greater of cash flow from ops.

Kind of a financing summary for the year. We did raise $400 million in senior notes in May. We also increased our revolver at the end of October to $120 million from $30 million. As we sit here today, it is fully undrawn and we continue to successfully use capital leases for our equipment at rates of 5% or less, and we would expect to do that through -- throughout 2013 as well.

With that, let me turn it back to Scott.

Scott A. Caldwell

Thanks, Steve, and on that note, we'll open it up in case anybody has any questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question today comes from the line of Steve Butler of Canaccord Genuity.

Steven Butler - Canaccord Genuity, Research Division

Could you give us a sense, Scott, looking at -- obviously, we'll see more details next Friday in the full filing for their 43-101, but I noticed the annual mining rate. Can you give us some perspective on that or maybe some metrics? 190 million tons per year, down from 235 million tons per year, what is that particular change? Is it above the strip -- on and above the strip ratio? Maybe just give us a bit flavor for the changes there.

Scott A. Caldwell

Yes, a couple of things, Steve. We thought we could reduce the mining rate from 235 million short tons per year to 190 million. That would be wrong. 190 million is still a very large mine, but a lot of us have done it and a lot of people are doing it now. But the strip ratio was part of that. And then we just tightened up our mining wits, if you'd like, from about 100 meters to about 80 meters, which allows us to move less tons and dive on the high-grade material quicker. So it's still a large mine, but we were able to -- it obviously reduces the number of haul trucks, et cetera, that we'd need to mine, so it reduces our capital cost a little bit. But we're pretty excited about what that does to the ease of implementation. And if -- but once you get to 190 million, if you decide you want to go higher and move a little more high grade forward, you can always bump the rate again.

Steven Butler - Canaccord Genuity, Research Division

And so, Scott, what's the heap leach component? If you're doing 130,000 tons per day mill flotation, what is the heap leach component in this mining rate?

Scott A. Caldwell

It's around -- if you look at the 130,000 -- and we'll get the real number right now, but it's around 25 million tons per annum on an average basis. So your -- the mill is 130,000 and your heap leach is about 125,000. Tracey is working up the number right now. And again, this will be out in another week or so. I won't yell out the exact number, but it's around 25 million tons per annum.

Steven Butler - Canaccord Genuity, Research Division

Okay. And your -- what does it look like for 2014 and '15? Again, we'll see that in the study next week for heap leach grades. Any changes to sort of head grades to the heap leach pad next -- in, say, 2014, '15?

Scott A. Caldwell

Basically, they're flat at about 0.12 ounces per ton, kind of the ore body average. They stay there until the mill turns on and you start to mill your higher grade oxide ore through the mill.

Steven Butler - Canaccord Genuity, Research Division

And your silver price on your $146 per ounce in the study was -- as per outlined, was it the $21 an ounce thereafter? Or, excuse me, $21 an ounce, long-term?

Stephen M. Jones

Yes, $21 an ounce, long-term, that's correct.

Operator

Your next question will come from Mark Heilweil of Spectrum Advisory Services.

Marc Heilweil - Spectrum Advisory Services, Inc.

Again, I'm a bit of a newcomer to mining, and one of the things I've observed, Scott, Steve, is mining company stocks don't necessarily turn out to be good investments. One of the reasons seems to be that you pull the ore out, you have a hole and you've got to explore some more, and it doesn't seem to be the financial management that other company do. In accordance with that, I'm just wondering, right now, it would appear that the gold in your stock, drawn back to present value and the like, is worth more than the -- it's easier to get at than the gold in the ground. Would you give any consideration to doing a modest stock buyback?

Scott A. Caldwell

I'll start with that. This is Caldwell. Until we get the mill built, we wouldn't consider a stock buyback, and that's -- so that's another 18 months or so. We've got -- we're about halfway through with the large capital program so we wouldn't consider a stock buyback in the next 18 months nor a dividend in the next 18 months until the mill is up and running.

Marc Heilweil - Spectrum Advisory Services, Inc.

Would you agree that you could acquire gold cheaper in your stock by buying back stock than -- right now and that would enhance the value of the shareholders' investment? Isn't...

Stephen M. Jones

Yes. I think what -- I think, Mark, what you're getting at is that if you look at the gold that's underlying our stock price today, it's cheaper than if you were just trying to acquire gold. And yes, we would agree with that. But as Scott pointed out, our capital is committed to the expansion so that we can get that gold out of the ground and turn it into cash.

Operator

Your next question will come from the line of Chitimukulu Musonda of CIBC World Markets.

Chitimukulu Musonda - CIBC World Markets Inc., Research Division

I guess, Scott, in the outlook section of your release, you note the North Leach Pad and the Merrill-Crowe plant as the contingencies for this year's outlook. There's no mention of the gyratory crusher. I was just wondering if you could update us.

Scott A. Caldwell

Sure. I'll start with the North Leach Pad and the Merrill-Crowe. They're on schedule. The weather that hampered progress in December and January, i.e. quite a bit of snow and cold temperatures, wouldn't allow us to do soil compaction. That's behind us now and we're back on track. We've added a -- the weekend work to get caught up for the days we lost, so we're looking pretty good on the North Leach Pad. Merrill-Crowe, the same thing. We don't -- we conditioned the Merrill-Crowe and the North Leach Pad in phases, but both of those are in pretty good shape right now. On the gyratory crusher. It is on schedule as well to begin commissioning in August of this year. The reason we didn't mention the gyratory crusher, if you look at our outlook of 225 to 250 ounces of gold, only about 15,000 of that is due to the gyratory crusher and that's a recovery. It's just a function of when the -- improvement in gold and silver recovery. Gyratory crusher gets up and running in August. We started to place those ounces out there. You don't see a lot of those ounces in 2013. So the gyratory crusher is on plan as far as schedule and also on capital cost estimate. The entire gyratory crusher system, which includes the secondary and tertiary crusher rings [ph] and the reclaim chambers, which will be converted into components of the mill, as well as the gyratory, they cost [ph] about $90 million. It's on track and on budget so it's proceeding pretty well.

Chitimukulu Musonda - CIBC World Markets Inc., Research Division

Okay, great. And just a couple of questions, if I may. When you said the mining cost on -- in the technical report is up 28%, what base are you going off of? Is it the original $1.03 per ton?

Scott A. Caldwell

Yes. It actually went up to -- and I said, 20%. It went up to $1.28, $1.29, depending on the -- and that's the average over the mine life. So if you were to look on it at an annual basis, there's years where it's slightly higher than that when we're doing some major component rebuilds in the forecast. So it's actually $1.29 so it's up 27% or whatever the math works out to be.

Chitimukulu Musonda - CIBC World Markets Inc., Research Division

Okay. Just one final one then. On the stripping, essentially the stripping on the deposit, could you give us a sense of what that looks like moving forward? Because when you -- I think you've disclosed in the past abnormal [ph] mining costs related to stripping. What does that look like over the next 2 years, say?

Scott A. Caldwell

Our pre-strip is very, very low over the next couple of years. As Steve mentioned earlier, we're actually stockpiling mill ore right now. We're leaving as much in situ as we can. We have a very, very low strip ratio but at or below ore body average of 115. When you see the strip ratio get a little higher than that is when we're pre-stripping Vortex, which would be in -- early in 2016 and beyond. There's about 75 meters of alluvium on top of Vortex. It has to be stripped before we get into the oxide ore that's overlying the sulfides of Vortex.

Operator

Your next question will come from the line of Zach Zolnierz of JMP Securities.

Zachary Zolnierz

Quick question. Let's -- on -- basically, start on the liquidity side. I think you had mentioned you're pretty comfortable with the way you are, but you mentioned a couple alternatives being debt or some type of silver stream agreement. I guess, just from a high level -- I think, in the past, you've said you wanted a minimum liquidity of $100 million. I guess is that still the same? And just as far as timing wise, I mean, when would you actually start to consider other options?

Scott A. Caldwell

First, on the -- I'll answer the liquidities feature as well. But yes, we're -- the $100 million is still kind of where we would like to stay as a minimum. I'm talking so that we never drop below $100 million through the bill on a cash balance basis. And then on the timing wise, we don't need to do anything in the short term, if we did anything at all. So we've got all of '13 and part of '14. We're just looking at options, and we're large shareholders. As management, we own a big block [ph] of shares of the company so around 10% or more. So we'd like to stay right there and not dilute ourselves. So we're really trying to -- we're examining anything and everything but equity. And some of it's pretty expensive money, and so we just sort of shy away from it. But looking at our options as we build this thing, and if something comes along that we think's attractive, we may or may not do it.

Stephen M. Jones

And I might just, Zach, reiterate what Scott said, and that is we have all of 2013 well into '14 before we would start to get toward that $100 million number.

Zachary Zolnierz

Right. Right, and that -- I think that makes sense. I was just thinking in terms of time frame and it wouldn't be anytime soon. I guess, so secondly, jumping onto the cash cost side, you had mentioned in the prepared remarks the cash cost per recoverable ounces of the $565 and then net of silver, it was even lower. I mean, is it right to think about -- as we go through 2013, you mentioned cash cost may be over $600 per ounce in the first quarter. I mean, is it right to think that that's -- will be somewhat stable and then, finally, when you get the Merrill-Crowe up and running, the North Leap Pad, that cash cost per recoverable ounces, is that more what like fourth quarter would look like? Is that the right way to think about it?

Stephen M. Jones

Yes, fourth quarter should be down in the low-$500s, and that is the right way to think about it. We also are bringing a shovel or one of the big shovels so it will be more efficient as well toward the latter part of the year. We actually bring 2 on, 1 in the third quarter and 1 in the fourth. So yes, if you look at kind of the first couple, 3 quarters should be pretty similar and then the fourth quarter, you'll see big drop as you get the benefit of the crusher, the north pad, Merrill-Crowe and the shovels as well.

Zachary Zolnierz

Got you. And through the year, in the past, you had said your sort of matching production to sales. That view is still the same, that maybe we saw the lag last year, but you kind of make up for that this year?

Scott A. Caldwell

Yes, we are -- production and sales essentially are the same number and we'll -- as we get the carbon columns up and running and then the Merrill-Crowe, we'll be gradually pull inventory out of solution where it's being pumped around and around right now, starting with carbon columns. Obviously, with carbon columns, and Steve talked a little bit about it, we don't get the silver recovery that we see with our Merrill-Crowe and so we'll see the gold to silver ratio a little out of whack until we get the Merrill-Crowe expanded. So that's another thing that Steve's talking about, the second half of the year having lower cash cost per ounce on the gold side.

Stephen M. Jones

Yes, you don't lose that silver. It just goes back on the pads. It effectively goes in so...

Scott A. Caldwell

It's round and round.

Stephen M. Jones

Round and round. But as Scott points out, you don't -- carbon columns, you don't get as much silver relative to gold.

Zachary Zolnierz

Great. And then last for me, just -- you had mentioned towards the end, $150 million of cash flow from operations, $150 million-plus for the year. Can you just remind us what price assumptions you're using for that?

Stephen M. Jones

Yes. 1,600 and 28. 1,600 and 28.

Operator

Your next question will come from the line of Mike Kozak of Cormark Securities.

Mike Kozak - Cormark Securities Inc., Research Division

The $635 million that you've spent, committed or locked in, how much have you actually spent?

Scott A. Caldwell

Well, Stephen, go ahead.

Stephen M. Jones

Yes we've actually spent about $290 million.

Mike Kozak - Cormark Securities Inc., Research Division

Your updated reserve statement, I think -- the proved and probable reserves in the oxide heap leach, I think they were down by 2x or 3x versus what was actually mined in 2012? I was just wondering if there was something else going on there.

Scott A. Caldwell

Some of the oxide material moved into the mill, and it's just a slightly better grade and we moved them into the mill. And then of course, the production depletion, right? We mined, and placed about 350,000 ounces on the heap and so that was pulled out of there. But some of the material moved into the mill and the net-net is our overall proved and probable declined by about 700,000 gold ounces. It went up on the silver side. We did the arithmetic on a gold equivalency basis. We went down by about 300,000, 400,000 gold equivalent ounces [indiscernible] by about 300,000 gold equivalent ounces.

Operator

And your next question will come from the line of Trevor Turnbull of Scotiabank.

Trevor Turnbull - Scotiabank Global Banking and Markets, Research Division

Yes, I just had a question with respect to the increase on the carbon column capacity. Had that been anticipated in the guidance you put out, that this was going to be up and running as early as March or...

Scott A. Caldwell

No, we actually thought those carbon columns wouldn't be running until the second quarter, so April was when we thought and the first carbon columns are on-site now. They arrived. There's 2 sets. They're 5 each. The first carbon columns started to arrive early last week and are being installed right now. So actually, we're going to have them running, say, a month ahead of what we anticipated. We did not anticipate having the carbon columns until next quarter, Q2.

Trevor Turnbull - Scotiabank Global Banking and Markets, Research Division

So I'm trying to remember how the guidance was structured at the end of last year, but it looked -- I can't remember if you broke it into 2 halves, but it looked like -- or I was assuming you were probably doing about 45,000 to 50,000 ounces in Q1 and Q2. But from the comments, it sounds like Q2 could be materially better, given the carbon columns are ready now or will be ready for Q2.

Scott A. Caldwell

The guidance you recall is correct. The first half was 90,000 to 100,000, so 45,000 to 50,000 per quarter. Now with the carbon columns showing up early, we could have a -- certainly, we'll achieve first quarter results and should have a better-than-anticipated second quarter. And the gold is in the solution. We've just got to get it out of the solution. On the carbon strip side, we have our own circuit on-site. We're loading to a higher level on a per ton of carbon now. That's around 150 ounces to 250 ounces per ton. And with that, we have the strip capacity. And the cold weather I alluded to that hit northern Nevada did affect our carbon strip. But it's up and running now and we'll be stripping carbon, but we're just loading -- same tonnage capacity, just loading more ounces.

Trevor Turnbull - Scotiabank Global Banking and Markets, Research Division

And the carbon stripping circuit capacity doesn't need to be expanded. It's already installed at a level that will handle all the additional carbon?

Scott A. Caldwell

Yes. So long as we load the carbon to 150 per ton -- 150 gold ounces per ton of carbon, we're fine.

Trevor Turnbull - Scotiabank Global Banking and Markets, Research Division

Okay. And then with respect to the Merrill-Crowe plant, which is coming in -- or the expansion on the Merrill-Crowe coming in in the second half, does this mean -- and I understand you're not getting as much silver with the carbon system as you will with the Merrill-Crowe, but does this mean that you're essentially being able to process all your fluid before the second half? So when the Merrill-Crowe kicks in, it's really just going to be helping recover more silver, but other than that, the gold will be about the same?

Scott A. Caldwell

Yes, we believe that our solutions flows will continue to rise and so right now, we're going to be processing about 10,000 gpm with these carbon columns, 100% of our solution. And every month, as we get more and more tons under leach, the North Leach Pad comes under, the solution flows start to go up, we'll run the carbons long until that Merrill-Crowe is up and produced -- up and producing. The gold in the second half of the year actually increases because the flow rates increase and we now have the capacity. We will have the capacity. We'll have it to process 100% of our solution now, and in April when the 2 carbon columns, and then our total plant capacity will be up around 30,000 gpm from the 6,500, where it is right now. Carbon columns and Merrill-Crowe is plural, both of them.

Trevor Turnbull - Scotiabank Global Banking and Markets, Research Division

And so you when you -- you said the gyro probably in August, so when do you expect the Merrill-Crowe to be running the way you want it? In the same time frame?

Scott A. Caldwell

Yes. It will be operational. The Merrill-Crowe, we'll start commissioning that in July and should be up to the production. And we add it a line at a time. In other words, we had a filter press and a clarifier and then another filter press, and so we don't commission all 20,000, 21,000 gpm at once. We'll add one line, and it will be 3 or 4, and then another line.

Trevor Turnbull - Scotiabank Global Banking and Markets, Research Division

Okay. And just a quick follow-up as well on some of your financial goals. You were talking about wanting to keep $100 million in cash on hand throughout the build. Does that include keeping the line of credit undrawn throughout the build or are you planning on potentially using that?

Scott A. Caldwell

That would include the line of credit.

Operator

Your next question will come from the line of Jared Levin of A.R. Schmeidler.

Jared M. Levin - A.R. Schmeidler & Co., Inc.

Just a question, wondering when -- after you've released the details behind your updated mine plan, will the company still be in a blackout window where insiders are not able to purchase more stock if they wanted to? Or would insiders, if they wanted to, be able to buy more stock after that detail is released?

Scott A. Caldwell

The blackout itself -- to answer your question, as soon as we're out of blackout, I intend to be purchasing stock. I think it is a great price. Not a great price if you were in at a higher price, but for me, I intend to be buying stock. The -- our lawyers say that we might actually be at a blackout prior to all of the details being released, but I'll wait and let them tell me when I'm out of blackout. But as soon as that issue comes out or as soon as I'm out of blackout, I intend to begin buying stock. "I" being Scott Caldwell.

Operator

And your next question is a follow-up from the line of Steve Butler of Canaccord Genuity.

Steven Butler - Canaccord Genuity, Research Division

So Steve, in your remarks, you had, I think, indicated to us cash costs for the fourth quarter. Because [ph] I think you gave us in your disclosure this morning was for the full year, $638 per ounce. Can you give us the Q4 net cash cost out of the silver credit?

Stephen M. Jones

Yes, Steve, it's $694 for the fourth quarter.

Steven Butler - Canaccord Genuity, Research Division

$694 an ounce. Okay, that's all I had.

Scott A. Caldwell

Steve, the average heap leach feed is 20 million tons per annum, not 25 million. 20 million.

Operator

And ladies and gentlemen, this does conclude the question-and-answer session for today. I'll turn the call back to management for closing.

Scott A. Caldwell

Yes, thanks for spending a little bit of time with us this morning. So we had a rough year and a rough fourth quarter, but we're looking forward to 2013. It's getting off to a pretty good start. At least, January and February are looking good. I think we're going to hit our metrics for the quarter and for the full year. We're really excited about how the capital program, the progress, the schedule and the spending, halfway through it and our contingency is rising, not decreasing, which is always a good sign. But we just don't see the huge risk for the huge blowout on this thing with what's been committed and what's been spent. These affirmed all our commitments on the good and the bad of that. Meaning, if you were to stop the project, you're on the hook for a lot of that money. But all in all, things are going pretty well. We're excited about where we are and we look forward to talking to everybody about the newly issued updated 43-101, which reflects what we see happening today. The capital cost hasn't moved. Some of the operating costs have moved around, but it still looks like a pretty strong project. Thanks again, and we look forward to catching up with you all later.

Operator

And thank you. Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and you may now disconnect your lines.

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