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Executives

Anne Day - Vice President of Investor Relations and Communications

Scott Graeme Perry - Chief Executive Officer, President and Director

Robert J. Chausse - Chief Financial Officer and Executive Vice President

Chris Bostwick - Senior Vice President of Technical Services

Analysts

Rahul Paul - Canaccord Genuity, Research Division

Adam Melnyk - Desjardins Securities Inc., Research Division

Craig Johnston

Anita Soni - Crédit Suisse AG, Research Division

Dan Rollins - RBC Capital Markets, LLC, Research Division

Bradley Semmelhaack

John Charles Tumazos - John Tumazos Very Independent Research, LLC

AuRico Gold (AUQ) Q4 2012 Earnings Call March 26, 2013 10:00 AM ET

Operator

Good morning, my name is Kyle, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the AuRico Gold Inc. Fourth Quarter and Year-End Results Conference Call. [Operator Instructions] Ms. Day, you may begin your conference.

Anne Day

Great. Thank you, operator, and good morning, everyone. Thanks for joining us today for the AuRico Gold Fourth Quarter and Year-End Earnings Results Conference Call and Webcast. On the line today, we have Scott Perry, our President and CEO; and Rob Chausse, our Chief Financial Officer, as well as other members of the senior management team, all of which will be on hand and will be available during the Q&A period at the end of this call.

At the end of the presentation, the operator will provide instructions again for those who wish to ask questions. Should you wish to follow along via webcast, it is available on our homepage at www.auricogold.com.

Before we begin, I will go through the abbreviated version of our forward-looking statements, which are also provided in the press release and today's presentation. Some of today's commentary may contain forward-looking information for AuRico. In this respect, we refer you to our detailed cautionary note regarding forward-looking statements in our press release and presentation. You are cautioned that actual results and future events could differ materially from their respective conclusions, forecasts or projections. We refer you to the section entitled Risk Factors in our latest MD&A and other filings available on SEDAR, which set out the material factors that would cause results to differ.

I will now turn the call over to Scott Perry, our CEO.

Scott Graeme Perry

Okay. Thanks, Anne. And good morning, everyone, and thanks for joining us today. I'm just starting off on Slide #4 in terms of the presentation deck. 2012 was truly a transformational year for the company as we completed the optimization of our asset base to focus on quality production and cash flow generation. We recently pre-released our Q4 production and cash costs result and I want to reaffirm that we are very pleased and encouraged by the results that we reported from both of our assets.

Today, we are reporting our 2012 full year results, which is the final reporting obligation before we can report future results from just our 2 core assets, without all this accounting noise for continued and discontinued operations. Our team has been very busy and I know that I represent all of our employees when I put forth that we've never been so proud of the AuRico today and how favorably we are positioned in what continues to be a very constructive metal price environment. It's been an incredibly transformative phase for AuRico Gold. In 2011, we consummated 2 acquisitions that ultimately represent the very operating asset base of today, being the El Chanate operation in Mexico and the Young-Davidson operation in Canada.

The most recent year, 2012, was an equally transformative year for AuRico, whereby our activities represented a disciplined strategy of trading up on asset quality. The key determiner that we consider in evaluating asset quality is North American jurisdiction, lower-than-industry average operating costs, organic production growth profiles and mine longevity. Against this criteria, we strongly believe that our core operations, Young-Davidson and El Chanate, present very well and are a perfect fit to the organization.

Since announcing our Q4 production results in January, we have delivered on our commitment to shareholder family initiatives, whereby we successfully completed our $300 million share buyback, which resulted in our outstanding share count being reduced by approximately 13%. Thereafter, we announced our peer-leading dividend policy, to which we declared the first quarterly dividend yesterday. In 2013, the annual dividend has been set at $0.16 per share or approximately $0.04 per quarter. And beginning in 2014, we have linked dividend distributions to 20% of our operating cash flow. As a result, all of our shareholders will be leveraged to our growing cash flow streams, which is primarily underpinned by the strong production growth profile from our cornerstone, Young-Davidson asset. After market yesterday, we also released our updated reserves and resources, where the company reported a reserve base of 6.8 million gold ounces, which represents a 1.7 million-ounce increase over 2011, which was attributable to reserve additions at the Kemess Project.

Concurrent with our focus on quality production, we had adopted the same view for reserves, whereby our objective was quality of ounces as opposed to quantity of ounces. We held our cutoff rates constant year-over-year to ensure that our reserve base remains comprised of quality high-margin ounces. We've also released the feasibility study to the Kemess Underground Project, a copper-gold porphyry located in Northern British Columbia. The study enhances the option value of this asset and outlines the development of an underground block/panel cave operation with average annual production of 105,000 ounces of gold and 44 million pounds of copper and a cash cost of $213 per ounce of gold, net of byproduct credits, over a mine life of approximately 12 years.

As there is little to no value currently to describe this asset where we focused on daylighting additional value here, whereby we'll continue to focus on initiatives that will further enhance the intrinsic value of these asset, such as permitting and exploration drilling outside of the current ore body. This mineral investment is expected to not only serve as additional value, but will also enhance the optionality of this asset moving forward.

In terms of our flagship asset, we're very proud of our Young-Davidson operation where the ramp-up continues to impress us all. Just recently, the board and management for Young-Davidson and we continue to gain much confidence in the potential of this asset in what may represent one of the more successful project commissionings in recent times. All of the individual site operations are demonstrating growth productivity, cost performance and ramp up profiles that are in-line with targeted expectations. The mid-shaft crushing and widening [ph] system is progressing on schedule for commissioning in Q3, and will be the key catalyst in driving the company's growing production profile and cash flow stream over the next few years.

The board and management were equally impressed with the productivity progress in the underground mine. We are currently in line from our third and fourth stopes and are well exceeding the targeted 1,000 tonnes per day for the quarter-to-date period. The mill facility has commissioned extremely well and this performance continues. Currently, the mill is operating above its nameplate capacity such that we are well exceeding our targeted 6,000 tonnes per day per rate. I have to give credit to Peter MacPhail and the original Northgate Young-Davidson team. We at AuRico, have been fairly impressed and are quite fortunate to acquire such a talented operating team for the Northgate acquisition.

At the El Chanate mine, we have all 3 ADR plants operational and production has returned to normal levels, such on an annualized basis, we are already operating in line with all of our targeted expectations. Accounting-wise, as part of our year-end impairment testing review, we've identified a noncash impairment charge was required for the balance of goodwill associated with the El Chanate mine. Rob will discuss this further during his presentation, but it should noted that this noncash goodwill charge has no impact on budget life-of-mine production or cash flow profiles for the El Chanate operation. Although a revaluation to the goodwill balance was required, we still very much see El Chanate as a long-term asset and our view of long-term potential is not one bit diminished. We continue to be impressed by the encouraging results from the recent exploration activity, just outside the current pit, and these were results that were incorporated in the life-of-mine impairment model, yet they do speak with a prospective mine life potential.

We have also amended 2013 operating cash flow estimates for El Chanate, following a review by our auditors of the impact of the adoption of IFRIC 20. As a result of this pronouncement, we have increased operating cash cost estimates by $75 per ounce to $550 to $600 per ounce, which is due to a reclassification of some operating costs from capitalize stripping into mining operating costs. It had to be stressed that our previously guided ore and cost guidance of $900 to $1,000 per ounce has not been impacted as this accounting requirement simply reallocates costs from sustaining capital expenditures from the traditional cash cost per ounce metric. As a result, there's no impact to the mine's cash flow profile due to this accounting reclassification.

Now, before I turn the call over to Rob, I would just like to take this opportunity to thank our Senior Vice President of Finance, Charlene Milner, who so confidently fulfilling the role of acting Chief Financial Officer in the lead up to AuRico recruiting role. AuRico truly is fortunate to have such depth in its management team. With that, I'll now turn the call over to Rob Chausse, AuRico's Chief Financial Officer.

Robert J. Chausse

Thank you, Scott, and good morning. Before I get started, I'd like to note that the information presented today only contains the results of our continuing operations, unless otherwise noted. As a reminder, our Australian operations were divested in the first quarter of 2012, El Cubo in Guadalupe y Calvo were addressed in the third quarter of 2012 and the sale of Ocampo was closed on December 14, 2012. That leaves us with our 2 core assets, Young-Davidson and El Chanate. Also, the divested assets have been presented as discontinued operations in the company's financial statements.

Turning to our results on Slide 6. Fourth quarter revenue from continuing operations was $63 million, driven by sales of approximately 36,000 gold equivalent ounces at an average realized gold price of $1,720 per ounce. Production for the fourth quarter, which includes preproduction ounces from YD, or Young-Davidson, was 41,000 ounces at a total cash cost of $628 per gold ounce. Production and total cash costs were higher than Q4 of '11, largely due to the startup of YD during Q3 2012. Fourth quarter adjusted operating cash flow was approximately $31 million or $0.11 per share. The company recorded a net loss of approximately $134 million during Q4. Included in this loss is a noncash goodwill impairment charge of $127 million. After adjusting for the goodwill impairment charge and other one-time charges that I will review in more detail shortly, net earnings were $13.7 million in Q4 compared to a loss of $7.4 million in the fourth quarter of 2011. On a per-share basis, adjusted earnings increased to $0.05 per share.

With regards to the noncash goodwill impairment charge, as part of the normal course year-end procedure the company is required to evaluate whether the carrying amount of its cash-generating units are recoverable. We prepared an updated life-of-mine plan that incorporated the results to the 2012 drilling and exploration program, whereby the company did not add resources or fully replace depletion -- 2012 depletion. We have taken a conservative approach and only include proven and probable reserves in our cash flow model. In addition, the life-of-mine plan reflects revised operating and economic parameters. Although an impairment was required, we view Chanate as a long-term asset and our view of its long-term potential has not changed. We continue to be impressed by encouraging results from the recent exploration activities, just outside of the current pit that were not incorporated in the cash flow model.

Moving to Slide 7. For the full year, consolidated sales from continuing operations were approximately 94,000 gold ounces at an average realized price of $1,690 per ounce. This, along with our silver sales, generated revenue of approximately $163 million, an increase over 2011 largely due to startup efforts of Young-Davidson. 2012 production costs of sales was $516 per gold ounce compared to $449 per ounce in 2011. Adjusting operating cash flow for 2012 was approximately $39 million. On a per share basis, adjusted cash flow is $0.14 per share. Adjusted net earnings for the full-year were $34.7 million or $0.12 per share. Full-year revenue production, total cost of sales, cash flow and adjusted earnings for our continuing operations increased over 2011 primarily due to the startup at Young-Davidson combined with an additional 3 months of contribution from the El Chanate mine that we acquired early in April '11. Reported net loss for the year -- full-year, including the noncash goodwill charge, is approximately $97.8 million or $0.34 per share. Capital expenditures were approximately $62 million for Q4 compared with $94 million in the fourth quarter of '11. The decrease is mainly due to completing YD surface construction. Current capital expenditures for the full year were $370 million.

Moving to Slide 8. The operational results on this slide and the next 2 slides include the results of El Chanate and Young-Davidson mines in the current year and El Chanate mine only in the prior year. Young-Davidson produced 19,236 gold ounces in the fourth quarter. The mine also produced approximately 7,000 preproduction gold ounces, for a total of 26,363 gold ounces for the quarter. Young-Davidson realized cash costs of $744 per gold ounce during its first full commercial production quarter. El Chanate produced 14,708 gold ounces or 18% fewer ounces than in Q4 '11. Total cash cost at El Chanate were $468 per ounce in Q4 of this year, a 17% increase over Q4 last year. Fewer ounces are due to unplanned maintenance of the ADR plant, and total cash cost per ounce primarily impacted by declining grade. Combined, our core operations achieved cash cost of $620 per gold ounce in the fourth quarter of 2012.

Moving to Slide 9. Full-year Young-Davidson produced 29,000 ounces. The mine also produced 27,000 preproduction gold ounces for a total of approximately 56,000 gold ounces for the year. Young-Davidson realized cash costs of $708 per gold ounce during the first 4 months of operation. El Chanate produced 71,145 gold ounces or 44% more than 2011. Total cash costs at El Chanate were $434 per gold ounce in 2012, a 3% decrease over '11. Combined, our core operations produced cash costs of $516 per gold ounce in 2012.

Moving to the next slide -- actually, the next 2 slides provide a detailed reconciliation of adjusted earnings segregated between continued and discontinued operations for the quarter and the full year. And when combined, give us a company-wide adjusted net earnings result for Q4 of $61 million or $0.22 per share. I'll focus on the continuing operations result, which is in the center column of the slide, and speak to the significant adjustments. As noted earlier, the reported net loss from continuing operations for Q4 was $134.4 million or $0.48 per share. The adjusted result adds back the unrealized loss of $6.1 million on the option component of convertible senior notes during Q4, the unrealized loss on investments of $17.8 million, which arose primarily from the decrease in the share price of [indiscernible] silver, and the noncash goodwill impairment at El Chanate of $127 million. The $6.6 million gain realized on the sale of the 50% interest in the Orion exploration property to Minera Frisco is deducted as well. After taking into account all the items noted on the schedule, the adjusted net earnings result for Q4 is $13.7 million or $0.05 per share.

Moving to Slide 11. The reported net loss from continuing operations for the full year was $97.8 million or $0.35 per share. The adjusted result deducts the unrealized gain on the opposite component of the convertible senior notes for the year, a $6.6 million gain realized in the sale or a 50% interest in Orion and adds back the noncash goodwill impairment at El Chanate of $127 million and the unrealized foreign exchange loss recognized in 2012 of $10.7 million, which were due to the strengthening of the Mexican peso and Canadian dollar. After taking into account all of these items noted on the schedule, the adjusted earnings result for the year is $34.7 million or $0.12 per share. As of December 31, 2012, AuRico has approximately $450 million in liquidity after adjusting for the share buyback completed earlier this year. Balance consists of approximately $300 million in cash and cash equivalents and $150 million available in credit facilities.

Moving to Slide 12. As Scott mentioned, the company is revising its 2013 cash cost guidance as a result of applying a new accounting standard, IFRIC 20, which deals with the accounting for open pit stripping cost in our production phase. The application of the new standard impacts our closing 2012 carryforward balances, as well as the ongoing strip cost -- stripping cost allocation at El Chanate. The result is a shift of approximately $5 million of sustaining capital cash costs; therefore, our total cash cost guidance at El Chanate for '13 increases to a range of $550 to $600 per ounce. Our consolidated total cash cost guidance moves to range of $565 to $645 per ounce. This change had no impact on our previous disclosed guidance for all-in costs at El Chanate of $900 to $1000 per ounce. Our primary focus is cash flow and this change does not impact our ongoing cash flow.

Our consolidated effective tax rate for the fourth quarter and full year had been impacted by movements in FX as well as the divestitures during 2012. Going forward, our tax rate is expected to be in the range of 25% to 30%. In closing, I want to reiterate our commitment to operating and free cash flow. While other performance metrics will be considered in the decision-making process, it'll be primarily be the cash flow metrics that will determine our ongoing strategic behavior.

With that I'll turn it over to Scott.

Scott Graeme Perry

Okay. Thanks, Rob. I think as you heard in my opening remarks and as the slide depicts, the AuRico today is truly a transformed company. It's been a busy 2 years and management is very proud of what we've achieved. We've traded up on the overall quality of the company's asset base. In which doing so, we have monetized some $1 billion or more for a series of divested non-core assets. We now have an asset base that comprises 2 Tier 1-producing assets, both of which are done in South and North America, and have presented very well in the world industry's cost curve. Our streamline asset base has a compelling organic growth profile the next 4 or 5 years and we've got attractive mine longevity. Although this really resonates in the intrinsic value back in each outstanding share, on our current asset base, we have been successfully growing reserves per share, production per share, and today's metal price environment will be demonstrating growing profitability per share, via earnings per share or cash flow per share. We believe that these favorable attributes and the exceptional strength of our balance sheet puts AuRico in great stead to facilitate ongoing returns for all our shareholders.

With that, we'd now like to turn the proceedings to the operator to open the call to Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Rahul Paul from Canaccord Genuity.

Rahul Paul - Canaccord Genuity, Research Division

On -- at Chanate, I assume the last impairment test was conducted as of year's end 2011. I'm surprised and a little confused by the magnitude at the write-down, since the reserve update didn't seem that negative -- 6% decline announced, 3% increase in fees, the discount rate has not changed. It seems to be that you're using a higher gold price. So I'm just wondering, could you provide us with some additional color on the revised operating and economic parameters that caused this impairment? How exactly did you come up with your new valuation of Chanate?

Robert J. Chausse

Sure. We -- in taking the model, we applied, obviously, the -- our new exploration and drilling results from 2012. And essentially, the prior year model contained material that wasn't in our reserves and resources, and there was a technical interpretation change for that material, and therefore, it was removed from the model. That, along with the depletion, caused the majority of the difference.

Rahul Paul - Canaccord Genuity, Research Division

So it was mostly -- I mean, would it be safe to say that it was mostly the result of removing ounces that were not in your reserves and resources?

Robert J. Chausse

Yes.

Rahul Paul - Canaccord Genuity, Research Division

Okay. That clarifies things a little bit. Then -- so what was the carrying value of Chanate via -- as of December 31, 2012? Is it just $170 million assigned to PP&E plus mining interest?

Robert J. Chausse

It's approximately $300 million.

Rahul Paul - Canaccord Genuity, Research Division

Okay. So there is some goodwill?

Robert J. Chausse

Yes. There's $106 million remaining in goodwill.

Rahul Paul - Canaccord Genuity, Research Division

And just staying with Chanate, you don't have much of a resource beyond reserves there. In your last exploration, I think, you spoke about 2 new discoveries at Chanate, possibly extension of the northwest zone. How long do you expect it will be before you can come up with the resource for these new discoveries? Or have you already done the work and established that the new discoveries would not amount to anything significant?

Scott Graeme Perry

Rahul, it's Scott here. No, we're very excited about what we're seeing at El Chanate in terms of exploration prospectivity, particularly towards the northwest.. The guys back in 2012, they did a reasonably sized exploration program focusing on targets along the investing trend to the northwest, as well as to the southeast. And you'll hear me following up on that as part of this year's program. But it's the third time since we've had this asset in our ownership that we stepped outside of an existing open pit footprint with our drilling program, and as a result, it's the first time we've identified targets where you could see potential mineralization coming into results category. So that really is the fundamental objective as part of this year's program, and we'll be looking to add a new swipe to the market as we progress with those endeavors.

Rahul Paul - Canaccord Genuity, Research Division

Okay. And just getting back a little bit at Chanate again, with respect to the exploration prospects and the potential to add reserves. Is your outlook unchanged from when you acquired the assets? Or has the work done since then tempered your enthusiasm, or increased it?

Scott Graeme Perry

I think it's safe to say that we're more enthusiastic than what we've ever been when it comes to exploration outside of El Chanate.

Rahul Paul - Canaccord Genuity, Research Division

Okay, that clarifies a lot. And what is the life-of-mine strip ratio at Chanate associated with your current reserve?

Scott Graeme Perry

It's around 2.7.

Rahul Paul - Canaccord Genuity, Research Division

2.7. Is anything at all expected to be capitalized?

Scott Graeme Perry

Well, in terms of -- you'll recall that we're expanding the pit in the southeast, which was necessitated to upsize the production profile from 50,000 ounces to a consistent rate of 70,000 to 80,000 ounces. That expansion -- that commenced last year and that has always been a struggle -- 2012 and a little bit of 2013. So that's a strip-phased expansion, and it will be capitalized. And then you've got the normal sort of sustaining CapEx component, which, as per our guidance, is around $8 million this year in terms of routine capitalized stripping.

Rahul Paul - Canaccord Genuity, Research Division

Okay. And then last question for me. Do you believe -- the $550 to $600 an ounce cash cost at Chanate, do you believe those costs are representative of a steady-state cash cost going forward, excluding any future inflation impact?

Scott Graeme Perry

I think they are, Rahul. And what I would point to is El Chanate's track record. If you look at last year, this operation finished the year at $434 per ounce. And if you look at every single quarter during the calendar year, that's where it was routinely operating at in terms of cost level. And then even in the second half of 2011 when it was under our ownership. Again, it was always operating in that sort of cost level. What you're seeing now is the cost have been ratcheted up a little bit as a result of the adoption of this new accounting standard, IFRIC 20, which essentially, bumps it up by $75 additional cost, but I have no reason to see why it shouldn't be a steady-state performance moving forward. I mean, track record is everything.

Operator

Your next question comes from the line of Adam Melnyk from Desjardins.

Adam Melnyk - Desjardins Securities Inc., Research Division

Just following up on Rahul's question about the life-of-mine strip at Chanate, 2.7. Does that include tonnes which you expect will be capitalized?

Scott Graeme Perry

Yes. Definitely.

Adam Melnyk - Desjardins Securities Inc., Research Division

What should we be using for a reasonable operating strip ratio then, hitting the expense line?

Scott Graeme Perry

Adam, we don't really provide that level of guidance.

Adam Melnyk - Desjardins Securities Inc., Research Division

Okay. Fair enough. And just to circle back, I think Rahul did a good job with the questions on the write-down. But I just want to confirm that there's -- that the write-down at Chanate is due exclusively to the exclusion of ounces and there's no changes to throughputs or recoveries or grade expected going forward, because it wasn't originally in the MD&A to revise the operating and economic parameters, which is a bit of a catch also. I just wanted to drill down more specifically on that as well.

Scott Graeme Perry

The primary cause of the adjustment to the balance of goodwill was due to the fact that we're taking more of a prudent stance or some may call it a conservative step. And since our life-of-mine modeling, you're only modeling in-situ reserves.

Adam Melnyk - Desjardins Securities Inc., Research Division

Okay. But your expected recoveries in grade profile, and strip ratio profile hasn’t changed materially, it's mostly an exclusion of ounces, is that accurate?

Scott Graeme Perry

Yes, that's accurate. And you can verify or validate that just by looking at all those disclosures that I shared with the most recent reserve and comparing that to the prior reserve.

Adam Melnyk - Desjardins Securities Inc., Research Division

Okay, great. And then in terms of Kemess, the asset has an IRR of around 10%. Just wondering what the steps are, going forward? I know you mentioned permitting, if you could provide us with a more specific timeline in terms of advancing this asset, and what your budgets will be and how much cash will be put in towards Kemess going forward?

Scott Graeme Perry

Yes. Look, that's a difficult question to answer because I want to advocate that the ink is not even dry yet on this feasibility, and so much so that the management team were already aware of further optimization opportunity that would even further augment the economics within the study. I guess from an exploration perspective, this target is still open to the east and that's why this year we want to embark on further drilling programs to better understand how far the mineralization makes sense. So to your question, we've dedicated a budget of some $5 million there for that drilling program. We feel all the value here in Kemess and in all honestly, we're still trying to ascertain what the potential upside valuation may be. I think what I advocated that is evident to us, there's not a lot of value reflected in our share price. But when you look at the resource outside and the inherent valuation opportunity, believe me, it really resonates when you're on site and you see how the property is already 2/3 built, given that existing infrastructure. So right now, to be honest, we've got a subset of our management team that's focusing on permitting activity, as well as this exploration program. And once we have all these in hand and the necessary data points, we expect to have a large number of options in front us in terms of how best to surface value for all of our stakeholders. So again, to answer your question, it's roughly $5 million for exploration and very small budget for -- just ongoing permitting activities.

Adam Melnyk - Desjardins Securities Inc., Research Division

Do you have a sense, Scott, of what the time line would be? And maybe if you want to provide a range, at this point, for advancing that permitting in B.C.?

Scott Graeme Perry

No. We don't have anything that we're willing to publicly commit to.

Adam Melnyk - Desjardins Securities Inc., Research Division

Okay. And in terms of making a production decision, what would be the key metric that AuRico would look at? Would it be a combination of metrics, including IRR and NPV, for the project and where would you need to see those types of metrics get to on this project through exploration success or the optimizations that you talk about?

Scott Graeme Perry

In all honestly, I can't really disclose or answer that question, because we haven't given it that level of regard in terms of -- for it. As I mentioned, right now, we're just focus on truly understanding what is the intrinsic value here and just focus on permitting and delineating what is the exploration upside.

Operator

[Operator Instructions] Your next question comes from Craig Johnston from Scotiabank.

Craig Johnston

Just a couple of housekeeping questions. Just back to Rahul's question about the carrying value at El Chanate right now. In the segmented note in the financial, it says $106 million in goodwill and then $354 million in assets at El Chanate. Is there something I'm missing there to get to kind of the $300 million overall carrying value?

Robert J. Chausse

Yes. There's a liability that needs to be deducted to get to a net asset.

Craig Johnston

Okay, perfect. And so it's -- to confer, it's about $300 million is the overall carrying value?

Robert J. Chausse

Yes.

Craig Johnston

Okay, great. And then in terms of the adjusted EPS, the consolidated figure of $0.22 for Q4. There's a $75 million kind of tax impact on the adjustment. I was just wondering if you could kind of clarify what that tax implication is, as it seems to be greater than 50% of the adjustments.

Robert J. Chausse

Yes, it relates to the disposition of Ocampo -- or the game on Ocampo. It's approximately $72 million.

Operator

Your next question comes from the line of Anita Soni from Credit Suisse.

Anita Soni - Crédit Suisse AG, Research Division

Scott, a few more questions on El Chanate, more on the technical side. On the fourth quarter, you guys made a decision to start piling lower grade material onto the leach pad. Is that something that we should expect to continue, or will you revert back more to reserve grade, which I think you posted about 0.6, 0.7 gram per ton at year end?

Scott Graeme Perry

I think if I want to -- I guess, I want to counsel that you assume reserve price moving forward in terms of the tonnage grade being stacked, in that way we can be opportunistic, we always will. I think as Rob mentioned in his remarks, we're very disciplined and what always drives out his decisions is free cash flow, so anything that's accretive to that. But when you look at our budgeted plan for this year or what's implicit in our guidance, it really does assume a great profile that's consistent with the in-situ reserve grade.

Anita Soni - Crédit Suisse AG, Research Division

Okay. And then with regards to the recovery rates, you had some impact in Q4 as a result of the ADR plant. How do you see that ramping up to the, I guess, normalized recovery rate over the course of the year? I guess my question is, in Q1, are you back to normal or are you still ramping up to normal?

Scott Graeme Perry

We are back to normal. Peter and the guys at El Chanate and our technical services team have done a great job such that we were back to full capacity very early in the quarter. And I guess the best soundbite I can give you to give you comfort is if you look at where we're at quarter-to-date and annualize it, it's right in line with our full year guidance.

Anita Soni - Crédit Suisse AG, Research Division

Okay. Did you give us -- I'm sorry, did you give us full year guidance on a throughput grade in tonnage basis that I'm...

Scott Graeme Perry

No, we did not.

Anita Soni - Crédit Suisse AG, Research Division

No. No, okay. All right. And then, I guess, just in terms of the inventory adjustments that tends to flow through at El Chanate, how much will you be -- do you expect to take this year?

Scott Graeme Perry

You may have to elaborate, Anita, I'm not sure what you're referring to when you say inventory adjustment.

Anita Soni - Crédit Suisse AG, Research Division

I think it's relating to sort of lagging costs in the leach curve. I guess, usually, there's some kind -- or at least this past quarter there was an adjustment to the positive that I guess reduced the cash costs, is the best way to put it.

Scott Graeme Perry

Yes. I'm looking at Rob, we might have to get back to you, Anita. Because we're not expecting any inventory adjustment. It's pretty smooth in terms of the cash cost profile at El Chanate, and you would have seen that last year where quarter-over-quarter, it was quite consistent in the low $430 per ounce.

Anita Soni - Crédit Suisse AG, Research Division

Okay. I guess, I'm just looking at it, and one of the things that I went over with Rob was that your -- you booked about $7.7 million in operating costs for this quarter and you processed 2.9 million tonnes. That would imply a little over $2 per ton in operating costs for a mining process and G&A, and that's pretty low. So I think there's -- some of it, there's a reconciliation that's coming on from lower cost ounces in prior quarters. But anyway, we can take that off line.

Robert J. Chausse

Actually, though, I think you're referring to the fact that our leach curve holds up a bunch of ounces, and so you're looking at a gross cost that gets netted out by the ounces that get caught up in the leach. And I think our -- well, this is for the technical guys, but we will - we recovered about 60% of our ounces within the first 12 months, 60% to 65%. So those -- the remaining costs will get caught up in inventory.

Anita Soni - Crédit Suisse AG, Research Division

So I just should keep a rolling sort of 30% in the inventory?

Robert J. Chausse

30%, yes.

Operator

Your next question comes from the line of Dan Rollins from RBC Capital Markets.

Dan Rollins - RBC Capital Markets, LLC, Research Division

Scott, maybe just going back to Kemess. Could you just confirm what infrastructure regarding, say, mills crushers, SAG balls is -- are still inside? I was under the impression that at couple of the mills were taken over to Young-Davidson, and then the other ones were going to be dismantled and sold. I just don't know where that stands since you've acquired Northgate.

Scott Graeme Perry

Dan, I'm going to turn the call over to Chris Bostwick. He's our Senior Vice President of Technical Services, and he was the gentleman that was championing the whole feasibility study. Chris?

Chris Bostwick

The Kemess concentrator mill had 2 trains, each with a segment on the ball mill. You're right, the ball mill was sent to Young-Davidson and one of the SAG mills was sold to another operation. The remaining train is intact and has not been committed to anybody, and has a capacity of approximately 25,000 tonnes a day, which is what we planned for in the Kemess Underground feasibility study, or 9 million tonnes a year.

Dan Rollins - RBC Capital Markets, LLC, Research Division

Okay, perfect. And then I guess one other question just on Kemess. Obviously, you're not getting much value for these assets within the current share price and, obviously, you're going to need to surface value here to do anything. But the key overhanging has always been from the social license, given some of the issues that happened in the past. I'm just wondering, Scott, if you could talk about what you guys have done since you've acquired Northgate to reengage the local community, local stakeholders and how the -- I guess, the project is viewed now versus where it was viewed backed in 2006?

Scott Graeme Perry

Yes. I want to stay at a high level, but I guess what I put forth from my perspective, as you make your way through the feasibility study, you'll see that it's a new strategy, a new design, especially in regards to the management of tallyings, and how we're depositing those tallies, there's been reengineering in that regard. I think it's also fortunate we're a new company in terms of ownership of this asset and that then leads to a new relationship. And what I can put forward is that we're currently in constructive dialogue as we speak.

Operator

[Operator Instructions] Your next question comes from the line of Bradley Semmelhaack from Crystalline Management.

Bradley Semmelhaack

My question is regarding -- at the time of the announcement of the substantial share bid, you mentioned the policy of using some of the balance of the cash to reduce debt. And since that announcement, there's been no follow-up on that policy. And I'm just wondering where you're at with that and if the policy has changed, and how your uses of that cash may have changed?

Scott Graeme Perry

No problem. When we did announce the sale of Ocampo, we did commit to making a significant capital return, as well as looking to reduce debt. We have successfully closed at $300 million share buyback. In addition, we fully paid down our revolving line of credit facility, this is the debt facility, so we paid that down by $138 million. In terms of utilizing our remaining balance sheet, we're very comfortable with the current working capital position and we don't see any need to pay down any further items in the balance sheet. So we're very happy with the status quo moving forward.

Operator

Your next question comes from the line of John Tumazos from John Tumazos Very Independent Research.

John Charles Tumazos - John Tumazos Very Independent Research, LLC

I have 2 questions. First question is, do you envision other transformational acquisitions to further enhance your asset base? Second, now that it's done, would you do another Dutch tender if the opportunity arose? I've been doing this 34 years. I only covered one company other -- otherwise that had a Dutch tender, a steel company in 1988, 1998 sold 1 division and did a Dutch tender for its other. And they did the Dutch tender at 30 and then the stock fell to 20 and then never traded above -- much above 20 again. And it just seems like the Dutch tender's benefit to 12% to tender and not the 88% that remain.

Scott Graeme Perry

Okay. Thanks for your question, John. Right now, if you looked to all of the bandwidth and resources within the company, we're entirely focused on our existing asset base. Young-Davidson is going to be a key flagship asset moving forward. All of the bandwidth is focused on the ongoing ramp-up of that asset, key risk that asset in the open market. It's not lost from me that we've got an exceptional balance sheet and a growing cash flow profile moving forward and we're in an interesting environment right now in terms of valuations, et cetera. So we're not operating with blinders on. We always keep an eye up on what that turns in terms of opportunities. But right now, I can confirm that everyone is just focused on operating the existing asset base and looking to get full valuation ascribed to what we currently hold within the company. In terms of the second part of your question, would we engage in further share optimization initiatives. I mentioned in my remarks, we jealously guard our share count in terms of moving forward. We're very focused on the intrinsic value behind each share. I think we're demonstrating asset base has got growing reserves, resources per share, production per share, today's metal price should be growing profitability per share, and that's likely to result in cash accumulation on the balance sheet. So again, we'll always evaluate what's best for the shareholders in terms of driving shareholder returns, but we can't really commit to much more than that right now.

Operator

There are no further questions at this time. I'll now turn it back over to Anne Day, VP of Investor Relations.

Anne Day

Thanks, operator. Just to wrap up, we'd like to thank everyone for joining us this morning. And as always, any time you have any questions, feel free to reach us with and we'd be happy to help. Again, thanks for your time today and we will now close the call.

Operator

That does conclude today's conference call. You may now disconnect.

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