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Allied Nevada Gold (NYSEMKT:ANV)

Preliminary Q1 2013 Operating Results

April 09, 2013 12:00 pm ET

Executives

Theresa M. Thom - Vice President of Investor Relations

Robert Mackay Buchan - Executive Chairman, Chief Executive Officer and President

Randy Buffington - Chief Operating Officer and Executive Vice President

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

Analysts

Sam Crittenden - RBC Capital Markets, LLC, Research Division

Chitimukulu Musonda - CIBC World Markets Inc., Research Division

Steven Butler - Canaccord Genuity, Research Division

Craig Johnston

Zachary Zolnierz

Andrew Mikitchook - GMP Securities L.P., Research Division

Michael J. Gray - Macquarie Research

Daniel McConvey

Thomas Daniel Kerr - Rocky Peak Funds

Peter Epstein

John Charles Tumazos - John Tumazos Very Independent Research, LLC

Dan Denbow - USAA Investment Management Company

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Allied Nevada Preliminary Q1 Operating Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, Tuesday, April 9, 2013, at 12 p.m. Eastern Time.

I'll now turn the conference over to Ms. Tracey Thom, Vice President, Investor Relations. Please go ahead.

Theresa M. Thom

Good morning. We appreciate everyone joining us this morning or good afternoon to those on the East Coast. On the call today, Bob Buchan, Chairman, President and CEO; Steve Jones, Executive Vice President and CFO; and Randy Buffington, Executive Vice President and COO, will be discussing recent announcements, including the Q1 preliminary production release that was issued last night. All press releases can be found on our website or on SEDAR. This call will be followed by a quick question-and-answer session.

Before we begin, please note that certain statements we'll make during the call may contain forward-looking information. For additional information, I refer listeners to read our cautionary statements contained in our press releases and on our website.

I'll now turn the call over to Bob Buchan.

Robert Mackay Buchan

Good morning, and good afternoon. I would have preferred to have done this before now. However, I wanted to ensure that I had the confidence in my remarks and that there were no surprises to come. I'm pleased to see that I have that confidence, and I've seen nothing that concerns me.

The decision to remove Scott as President and CEO is because the board lost confidence in his leadership. There's nothing wrong with the orebody, there's nothing wrong with the business plan, there was everything wrong with the implementation of that plan. Of the 3, this is the easiest to fix. Randy Buffington has the track record and the skill sets to do this. As Tracey mentioned, Randy is recently appointed COO of the company. He started in February.

For those of you that don't know Randy, he came to us from Coeur d’Alene where he was COO of that company, and in his background, he has 2 years as General Manager of Goldstrike. In the short time that he's been with Allied, he has already -- we are already seeing the fixes that are required. As I said in the press release, the mine is starting to perform as it should.

I would also like to confirm my and the board's confidence in Steve Jones and his ability to manage the financial affairs of the company. I am committed to the board and to the shareholders to make sure everything is advancing properly. I will continue to do that.

I'd now like Randy to introduce himself by speaking of the Hycroft operations.

Randy Buffington

Good morning. Good afternoon, everyone. Just real quick, I'll -- just a little bit of my history, for those of you who are not familiar with me. I've spent most of my career, the last 30 years, in the mining industry, a lot of focus on the gold industry. I managed 6 different operations throughout the gold belts. 3 companies I've been with, Cominco American, Placer Dome, Barrick and most recently with Coeur d’Alene mines, from General Manager to COO. A lot of experience in heap leach and projects such as this. And it's really exciting to be back in Nevada and be involved in this project. I spent the last few weeks getting my head around both the operation and the project. And it's no less exciting now than it was when I agreed to join the Allied team and come to work with Allied. The project's a good project. There's no smoking guns. It's a simple flow sheet, it's a simple project, when you compare it to a lot of the real technical projects that are out there that are being difficult and have capital and operating issues.

First impressions on the mine have been positive. A lot of work to do on the site, but it's simple work that needs to be done. As most of you know, with a heap leach, there's really only 2 things that you do, and that's have a good plan and execute the plan. There was nothing wrong with the plan. Poor execution of the plan was the culprit for most of our operating results, and we've already rectified most of those: higher solution rate to the pad, better efficiencies through our operating components, and probably more important is putting a solid team with a solid track record in place at the mine site. We've been able to attract some high talent in the mining industry. Carl Waggoner has joined us as Operating Manager, over 35 years of experience in running and building big mines, high tonnage. Darren Tinney comes to us with 25 years of experience, international experience, where he's built and managed mines. Most recently, he just went through the startup of the large heap leach project at Bald Mountain. So he brings that heap leach project experience, as well as the technical expertise to start up the mill. As well in there, to support those operating people, we've also brought in senior managers of Safety, Environmental and Health to make sure we round out that team and have the complete operating efficiency that we expect on site.

Q1 was actually good coming into February. We were able to get a lot of those efficiency issues rectified. And as the press release stated, we've actually been able to increase our biggest problem, which was our solution to ore ratio, where we came from in the 9,000 gallons per minute to the pad to 13,000-plus gallons per minute to the pad. Next decision or next milestones for us is the startup of the north pad, which gives us more operating space, and the commissioning on Merrill-Crowe, which are on track. August becomes the next milestone for the crusher. Crushed ore is delivered through the second half of the year at, nominally, 2 million tons per year. That gives us per month -- pardon me, per month -- 2 million tons per month. That gives us the increase in recovery in the second half of the year, as well as material that's close to liner with a high percolation rate.

So the plans are all in place. I don't see any concerns with the project. We now, from an operating team, have to deliver on the project. And I think we've turned that corner and started down that pathway.

Stephen M. Jones

Right. Good morning, afternoon, everyone. This is Steve Jones. Just want to make a couple of comments from a financial standpoint. First and most important, we do continue to believe that the cash on hand, the cash flow from operations, the funding that we expect with respect to the mobile mining equipment, the capital lease financing for that equipment and our revolver are adequate financing sources to fund this expansion. Now when you look at all those financing sources, we do -- we will be required to rely on the revolver. We expect we'll be required to rely on the revolver sometime in the second half of 2014. From our perspective, we would rather that revolver be insurance rather than something that -- as we look out, that we would be relying on. And therefore, we will be looking for non-equity funding sources during that time period.

So I know there's been a lot of discussion about where we are in terms of funding, and I guess I just wanted to make that clear. We have adequate funding in place. We would like to build ourselves some cushion. We're in no hurry to build that cushion. We have ample time to do so, and we will do that with non-equity funding sources.

The other comment I'd like to make is, in the more recent calls, we've talked about focusing on sales. That will continue to be our focus. You'll note that we produced more than we sold in the first quarter. We did have several tons of precipitate that was sitting at the site at the end of the quarter. We did have some issues with our retort during the quarter. We could have sold that precip to a third party, but to do so, like we did at the end of the year, it -- we would have had to ship it across the country, have it retorted and then ship it elsewhere to have it finally refined into gold and silver. Much more expensive proposition than us retorting it ourselves. So we made the decision not to ship that out at the end of March, but rather to let it sit there. And we will process that precip ourselves during the second quarter. So you should see the sales actually exceed production during the second quarter.

One other comment that was passed to me since the press release went out is that we only produced 11,000 ounces of gold in the first quarter. That is -- or March, in the month of March. That is actually not correct. And I understand where the math came from. But the 27,000 ounces that we previously talked about is being sold and available to sale, included all inventory. So it was not a production number. So if you actually look at what we produced in the month of March, it was around 15,000 ounces.

So those were the 2 broad comments I wanted to make on the financing. And with that, I will turn it back to Tracey.

Theresa M. Thom

Yes, I think with those comments, those initial comments made, we'd like to now open up the call to question-and-answer session.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Sam Crittenden from RBC.

Sam Crittenden - RBC Capital Markets, LLC, Research Division

I'm just curious about the inventory at year-end. I think there was something like 50,000 ounces in solution. Is some of that starting to come out into your sales now? Or is that more of a Q2 thing and then later into the year as the new carbon columns come online and the Merrill-Crowe is fixed or finished?

Stephen M. Jones

Yes, Sam, this is Steve. It's -- I'd say it's just now starting in April to come out in the sense that we're now processing all the solution, be it in the Merrill-Crowe or our carbon columns. So it's really a Q2 event.

Sam Crittenden - RBC Capital Markets, LLC, Research Division

Okay. And then could you tell us what the mining rate is sort of trending like through the first quarter? Is it still sort of up around and just over 200,000 tons per day?

Randy Buffington

Yes, Sam, this is Randy Buffington. We're between 188,000 and 200,000 tons per day, depending upon the mining area, with the prime focus being on delivering the ounces. So we're moving equipment around to ensure that we're -- on a daily basis, we're hitting our ounce target to the leach pad. And that is nominally 1,500 ounces per day.

Sam Crittenden - RBC Capital Markets, LLC, Research Division

And is that 188,000 to 200,000, is that sort of what you're forecasting or there are things you can -- you're trying to tweak to sort of get that up a little higher?

Randy Buffington

Well, that is budget. We've been hitting budget tons going out of there. But some of the refocus is to not necessarily focus on tons and focus more on quality ounces. The orebody and the state of the orebody allows us a lot of flexibility in the mining. So better utilization equipment and more focus on delivering the appropriate amount of ounces to the right area is -- has really been our focus for the last few weeks.

Sam Crittenden - RBC Capital Markets, LLC, Research Division

And then just a question on -- how much sort of -- and maybe you don't have the exact number, but I'm just curious about how much sulfide material was stockpiled during the quarter. And was that sort of in line with what you were thinking?

Randy Buffington

I don't know whether Steve has that. I don't necessarily have that in front of me, but Steve may.

Stephen M. Jones

Yes, Sam, let me come back to you. That is a number we have, but it's not a number I have at the tip of my tongue.

Sam Crittenden - RBC Capital Markets, LLC, Research Division

Okay. No, that's fine, we can get that later. And then just one last one for me.

Stephen M. Jones

Yes, it's consistent, Sam, with our expectations, but I can come back to you with the amount.

Sam Crittenden - RBC Capital Markets, LLC, Research Division

So I guess the point is though that there was no sort of surprises and finding more sort of zones of sulfide where you thought it might be oxide in this quarter at least?

Stephen M. Jones

That's correct.

Sam Crittenden - RBC Capital Markets, LLC, Research Division

Okay. And then just a question on the mill. Is there anywhere in your internal planning or have discussions come up on potential for deferring the mill by 6 months or 1 year just to sort of -- because, I mean, if -- I would think that would be 1 way of alleviating some of the financial crunch if you're unable to find sort of easy external financing cushions as you'd discussed.

Stephen M. Jones

I mean, there are some options along those lines, including maybe bring 1 SAG mill up and then follow it with another one. So -- I mean, those are definitely alternatives. Certainly, at this stage though, our focus is still to bring the full mill up 1 January, 2015.

Robert Mackay Buchan

I think the important thing to understand -- I'm sorry, let me rephrase that. We've got full confidence that Randy is going to deliver on the budget or -- and -- for the next couple of years. And with that in place, I'm highly confident that we can meet the targets that we've set. And I see no reason at this point to vary from that target. It's a legitimate one, we're well into it. As you've seen, we're 59% -- or 58% financially complete. And I have a lot of confidence in the people that we have doing that project, and I see no reason to slow it down at this point.

Randy Buffington

Sam, this is Randy Buffington. Just 1 clarification. You asked about the sulfide material. We've actually had much the opposite experience. In some of the backfill and waste that wasn't characterized has turned into ore and actually good ore. And so we're actually finding more oxide ore through the first quarter than we anticipated in the mine plan. So that's a positive thing from a mining perspective.

Operator

Your next question comes from the line of Chitimukulu Musonda from CIBC.

Chitimukulu Musonda - CIBC World Markets Inc., Research Division

Just a couple of questions from me. Number one, there seems to have been a largest swing in silver grades from the beginning of the quarter to the end. And Randy, could you just help us understand how to think about sort of the grades for the remainder of the year?

Randy Buffington

Well, I think silver is -- the silver grades do swing between areas and between mining areas. The geologic model indicates that's going to be consistent throughout the life of the mine. They're high. It's not a big -- because of the heap leach, we -- at this point, at the run-of-mine, the recoveries are fairly low. We really focus on gold grades. On the recovery side, we've been hitting our expectations on the silver, and we expect that to continue. But as far as the mining, I guess it's a generic answer, but the silver grades will be variable through the mining areas. One thing to remember, early in this year, we're actually in an old area backfill that we're mining to expose ore. And we're seeing some ore that was uncharacterized. So there is a lot of variability in the silver grades. But the gold grade and the cyanide soluble grades have been very consistent.

Chitimukulu Musonda - CIBC World Markets Inc., Research Division

Okay. Fair enough. You stockpiled some material at the end of last year, about 3 million tons. Could you tell us if that stockpile is still about the same, has gone up or what the story is?

Stephen M. Jones

Yes, the stockpile, that's the same sulfide stockpile that Sam was asking about. And I've got the numbers now in front of me. And we added about 649,000 tons in the first quarter. So not a lot of -- we did not stockpile a lot of sulfide in the first quarter.

Operator

Your next question comes from the line of Steve Butler from Canaccord Genuity.

Steven Butler - Canaccord Genuity, Research Division

Well, guys, a couple of questions for you. Steve, what's the size of your revolver?

Stephen M. Jones

$120 million.

Steven Butler - Canaccord Genuity, Research Division

$120 million, okay. And you guys have -- when you came out with your guidance for the start of the year -- for the year, you talked about production and sales in the same vein. No pun intended, although some being deposit. But are we still talking about that in terms of 90,000 to 100,000 ounces? When you talk about production, are we talking about one and the same production and sales of 90,000 to 100,000 ounces in the first half?

Stephen M. Jones

Yes, that's correct.

Steven Butler - Canaccord Genuity, Research Division

So you obviously have a lot of -- a fair bit of work to do, I guess, and you're still confident there. The 38,000 ounces of production in Q1, if we take the sales guidance of 27,000, plus these sales that will leak into precipitates retorted in Q2 is 34,000 ounces, where is the difference? I mean, it's only 34,000 ounces, but we're still talking about a company needing to meet guidance. But where's the 4,000 difference?

Stephen M. Jones

The difference, it's on carbon. So we're expanding our carbon columns. And so as we expand the carbon columns, you're going to end up with a little more in the circuit on carbon.

Steven Butler - Canaccord Genuity, Research Division

Okay, that's understandable, Steve, yes. And now the retort capacity limitations, has that caused you any concern? As you obviously have a greater capacity, are you also increasing your retort capacity? Are there any limitations there from a premium [ph] point of view?

Randy Buffington

We actually increased our -- we doubled the capacity of the retorts over the first quarter. That actually ended up as being one of the issues that we had. While we commissioned a new retort, we had some mechanical issues with the other one. Both retorts were down for a period of time. Both retorts are operating at expectations right now. And based on our projections going forward, we won't have any issues with the expanded retort capacity in being able to manage that precip on site.

Steven Butler - Canaccord Genuity, Research Division

Yes. With these 2 retorts in operation, Randy, is that what you're saying?

Randy Buffington

Yes, they're both in operation right now.

Steven Butler - Canaccord Genuity, Research Division

Okay. And that's enough capacity for the accelerated or the expanded heap leach?

Randy Buffington

Yes.

Steven Butler - Canaccord Genuity, Research Division

Okay. Randy, what were maybe some of the easier -- maybe not easier, nothing is easy. But what were some of your key things you noticed about -- and implemented changes since your brief tenure on the job? Maybe a couple of highlights for you.

Randy Buffington

Well, I think getting the site guys focused on the plan. This is a large low-grade heap leach, and there's a lot of examples of best practices out there, Round Mountain being one of them. But you got to focus on the plan. And it's really about solution management going to the top of the pad. So we were -- we had to get from 9,000 to permit levels and -- yes.

Steven Butler - Canaccord Genuity, Research Division

That's essentially it. Okay.

Randy Buffington

And so we had to get there. We had a Merrill-Crowe unit that was struggling with clarifier issues and other issues not running at nameplate. That's a couple of thousand ounces a month. So getting the team focused on making sure that we got the throughput out of the existing capacity. We had some delays on the new carbon columns. And rightfully so, we weren't able to get those online for a lot of different reasons, but we made some decisions for early commissioning to actually get some process and capacity. And just a note, those improvements have actually netted right around 140 ounces per day since increase in recovered ounces since March 17, March 18. So those are all working. Getting -- this is -- as I said earlier, this is really a simple project. It's a large low-grade heap leach. It's got a long history. Vista did real well on it. That's basically a great pilot plant for us to look at. So taking the best practices, as I mentioned, Round Mountain, it's an 800,000-ounce-per-year operation with a long history of meeting and exceeding targets. And they do that by being good at executing the plan. And that's really what we're focusing our attention right now.

Steven Butler - Canaccord Genuity, Research Division

Okay. Guys, lastly on -- it relates to the mill expansion project. And I know that there's some concerns in the market with respect to salability and on relevant terms in the market for concentrate sales, if you're indeed going to go down the path and only have 1/3 of your sulfides processed on-site with an autoclave, therefore, 2/3 that go elsewhere in Nevada or worldwide. How certain are you -- are those terms that you indicated in the pre-fees or the updated economic study? i.e., in Nevada, about -- was it $12 a ton, I think, I believe, for concentrate, plus the 4% to 6% payable deductions, are those still terms you're comfortable with? And/or maybe do you look to nail down a concentrate agreement at some point in the future with third-party that can help stabilize the market's view of the economics of that project?

Stephen M. Jones

Yes, Steve. We're -- I mean, we've talked before that, whereas previously, we had not been out in the market to actually try to play some of the concentrate because we're a little bit -- it's a little bit too early, we are actively out talking to folks in the market to try to give the market a little more comfort on the terms in the 43-101. That's going to take several months to do. It's not something that happens overnight. We're not trying to place all of our concentrate. That would be to our disadvantage. At this stage, we're probably 1 year ahead to be out in the marketplace. But we are out there trying to get a couple of, I'm going to say, definitive agreements or at least in the MOU stage where we could give everybody some comfort as to the ultimate terms and ultimate payable factors we can expect to receive.

Operator

Your next question comes from Craig Johnston from Scotiabank.

Craig Johnston

Just in terms of the mine plan for Q2, just wondering if you could give us a sense of what you plan on placing on the pads and if you have a plan to stockpile a lot of sulfide material.

Randy Buffington

Yes, Craig, this is Randy. There's not a lot of stockpiling in Q2 as we get back into the -- we're going to focus our attention on this backfill and delivery of ore. Q2 is really a focused area where we hope to get the north pad up and running early, which we're commissioning right now. So it gives us an opportunity to focus our mining equipment on placing good oxide ore close to liner. And that's in the plan and that's in the mining plan. So there's not a lot of stockpile that's ongoing through the Q2 plan.

Craig Johnston

Okay, great. That's helpful. And then just in terms of kind of the anticipated sales for Q2, do you have a sense of kind of the ratio between what would be new production based on what stack during in the quarter versus what's already on the pad in inventory? Tough question.

Stephen M. Jones

Craig, I guess I'm not real sure how to answer that. I mean, certainly, I've talked about the inventory in terms of the precip and -- I mean, when we look at what's coming out on a daily basis and we look at what we're adding to the pads and, as Randy just said, focusing on getting the north pad up and operational. So, I mean -- we don't, I don't think, really look at it in terms of what's already stacked on the leach and what we're putting on in the quarter. I mean, certainly, if you go back and look at what we -- the ore we put on to the leach pads Q1 and Q4, there's significant number of ounces already on the pads that we're expecting to see in the second quarter. Now we're also going to do a few things maybe to enhance that, like starting to lease the side slopes. And so some other things that Randy's looking at to help enhance production.

Operator

Your next question comes from the line of Zach Zolnierz from GMP Securities.

Zachary Zolnierz

Just a couple of quick ones. First, on the power upgrades that have been talked about in the past, I'm wondering if you could just give an update on how that's progressing and perhaps what are the major milestones coming up there.

Randy Buffington

Zach, this is Randy. There really hasn't been any surprises on that. We're actually on schedule with that Nevada power. And our permitting group and Debbie Lassiter have been working real close together. It's weekly meetings, it's monthly meetings. In fact, we're anticipating that we may actually see some improvements in the schedule. But right now, we went through the major milestones, which is actually kicking the project off, getting in into the BLM's hands and moving down the road. Some of the upgrades have actually already started. And there's no surprises on the project. I think the schedule is attainable, and that's what we're going to manage to that schedule.

Zachary Zolnierz

Great. That's good to know. Second, I guess jumping to the capital cost side. In this last press release, you gave some updates on the spent to committed amount. I guess I'm wondering, is the contingency built into that? Is that still $97 million?

Stephen M. Jones

It's somewhere in that neighborhood, Zach. As we roll forward, there's ins and outs of that contingency, but it's still somewhere in that $90 million neighborhood. It's certainly our belief that -- continues to be our belief that we can complete the project for the $1.243 billion that we've indicated since the get-go.

Zachary Zolnierz

And just from a time frame perspective, you talked about the mill construction bid packages coming up. So, I mean, is it right to think that by the end of the second quarter, even by the end of the third quarter, that 58% number that you quote, I mean, is a large amount of the CapEx, maybe over 90% will be there spent or committed really over the next couple of quarters?

Stephen M. Jones

Yes, committed, certainly. A significant percentage will be committed. It probably won't jump quite to the 90%, but it'll jump considerably. If you look at this quarter, the actual -- we spent a fair amount on the crusher and on equipment. We've made a lot of payments on the electric rope shovels. And the actual commitment number didn't change a whole lot, but the spending changed. When we get into the next quarter, as you point out, Zach, it will be more making commitments and not as significant on the spending side.

Zachary Zolnierz

Right. Because the mill package essentially will be a good chunk of the remaining $523 million.

Stephen M. Jones

That's correct, yes. We did commit this quarter for thickeners and float cells, and that's a $40 million commitment, for example. But when we commit on the mill, that will be somewhere in the $120-plus-million commitment.

Zachary Zolnierz

Right. And then my last question for you, Steve, is -- and maybe it's a little too early to tell now, but you talked about giving yourself a decent buffer here and kind of wanting the revolver as more of an insurance. Is there a size that you have sort of in the back of your mind as to that buffer? Is it still the $100 million of liquidity? Or is it bigger, smaller, kind of where do you stand on that?

Stephen M. Jones

Yes. I think it's -- we're still working our way through that. We definitely want to give ourselves some buffer. We don't -- we're pretty comfortable with the numbers we're working with. So we're not looking to make that buffer too large.

Robert Mackay Buchan

The number is going to be small. It's not going to be a big number.

Operator

Your next question comes from the line of Andrew Mikitchook from GMP Securities.

Andrew Mikitchook - GMP Securities L.P., Research Division

Most of my questions have been answered already. But just if you could further expand your commentary and if you're willing to provide any guidance on these covenant adjustments that you received in Q1 and how that should be considered beyond Q1.

Stephen M. Jones

Yes. So in Q1, we did receive some amendments to our bank revolver covenants. As I think everyone knows, our bank revolver is undrawn. The reason for the need for the amendments is that we're pulling -- we pulled a lot of our equipment forward and, therefore, reduced the amount of our net debt. And we had an EBITDA to net debt coverage ratio. And it's simply a matter of timing. When you bring the shovels and the related trucks forward, you're adding a lot of net debt. And as we're growing and increasing our production, it causes us a temporary need to amend those covenants. We will probably amend the covenants further for second, third and perhaps the fourth quarter of this year, but it's pretty clear that we wouldn't need to amend the covenants on a long-term basis.

Andrew Mikitchook - GMP Securities L.P., Research Division

And, again, you've highlighted that at this point, it doesn't -- you wouldn't foresee under -- any drawdowns under that line of credit this year.

Stephen M. Jones

That's correct.

Operator

Your next question comes from the line of Michael Gray from Macquarie Capital Markets.

Michael J. Gray - Macquarie Research

From the news release and the call, to me, it's clear that you guys are fully committed to the large mill and more or less on schedule. Randy, can you give us an idea of your level of conviction on the flow sheet for the transitional and sulfide ore processed sheet, how definitive it is?

Randy Buffington

Michael, the flow sheet has been set. It's a fairly simple flow sheet, allows the transition to take opportunities of upgrading it or leaching it on site, depending upon grade metal content. The sulfide is fairly simple, allows us to upgrade the con or the leach to con or to take it into -- to an autoclave. So it's a simple flow sheet, the flow sheet set. We're comfortable that we can get the recoveries that we want out of the ore. And right now, there's nothing that would indicate a change to the flow sheet.

Michael J. Gray - Macquarie Research

Okay. And Bob, can you give us an idea whether you're going to be the long-term CEO? Or are you going to be interim for Allied Nevada?

Robert Mackay Buchan

I've made a commitment to the board and to the management and to the shareholders that I'll stay until it's fixed and operating properly.

Operator

Your next question comes from the line of Daniel McConvey from Rossport Investments.

Daniel McConvey

Forgive me if it's been covered in previous conference calls, but just besides the flow on the heap leach, et cetera, can you give us -- and I know it's historically a heap leach, but how happy are you with the expected leach times, leach recoveries, et cetera, that have happened so far and that you see going forward? Is there anything in the ore that's causing any kind of recovery delays or anything of that nature, besides the tabbing of that flow and the carbon columns, et cetera?

Randy Buffington

Daniel, this is Randy. We actually have a third-party, Kappes, Cassiday, that's one of the leading industry experts in heap leach that actually does a monthly peer review on the leach pads. They've all -- every report's come back that we will give the acceptable recoveries. There's no recovery changes, and the metallurgy seems to be consistent. The cyanide soluble, ability of the ore that's going out there is consistent with plan. It's just executing the plan. It really is that simple. Yes, solution to ton ratio, they've indicated that in their report. I can give an example of -- I think it was December or January, we placed 4 million tons of ore. This ore has a high moisture -- or a low moisture content, takes a lot of water, in the neighborhood of 10% to 11%, to bring it to saturation, allow it to come. Out of that 9,000 gallons that was being pumped on to that pad, only 2,500 of it just to get the ore wet that month. So we only have 5,000 coming out the bottom. So we weren't hitting the targets. That's the solution to ore ratio, slows things down. We fixed that problem. We're modeling it, we're designing it and we're engineering it on a daily basis to make sure that we're hitting those targets. It really is that simple. And Kappes, Cassiday reports have indicated as such as well.

Daniel McConvey

Okay. And of the ore you're putting on the pads in the next, say, 2 to 3 years, it would be fairly -- I know there's a mixture of ores and -- but it'd be fairly consistent with the ore that's going on in 2013?

Randy Buffington

Yes.

Operator

Your next question comes from Tom Kerr from Rocky Peak Capital.

Thomas Daniel Kerr - Rocky Peak Funds

Sorry if I missed this, but can you comment yet if the cash position has materially changed from year-end?

Stephen M. Jones

Yes. We haven't released our financials yet. I did comment that we spent a lot of capital during the first quarter. So, I mean, you're going to expect to see the cash position decline. But we haven't released our numbers yet, so I can't give you a specific number.

Thomas Daniel Kerr - Rocky Peak Funds

Okay. And back on the line of credit and the revolver, is there anything that can change the amount, the $120 million, any financial results at that issue that would raise or lower the actual $120 million, irregardless of the covenants?

Stephen M. Jones

No, there's not, unless we ask for an increase.

Thomas Daniel Kerr - Rocky Peak Funds

Okay. I'm sorry. Go ahead.

Stephen M. Jones

I said, unless we ask for an increase.

Thomas Daniel Kerr - Rocky Peak Funds

Okay. All right. Last question. Is management allowed to buy shares? Or have they been buying shares of stock at this kind of crazy valuation it's at now?

Stephen M. Jones

Yes. We're currently in blackout. So nobody can buy shares currently, yes, until after we release first quarter, sometime in probably -- yes, week of May 6.

Operator

Your next question comes from Peter Epstein from MockingJay.

Peter Epstein

Can you talk about in your budget what kind of gold prices you're assuming in order to meet the cash flow that will help fund the program?

Stephen M. Jones

Yes. We assume $1,600 and $28 silver is what we assume. We then drop that out starting in 2014 down to $1,400 and $21 silver.

Peter Epstein

And then 2015?

Stephen M. Jones

That's '15.

Theresa M. Thom

'14 and '15 are the same.

Stephen M. Jones

Yes. That's same.

Peter Epstein

Okay. So based on those numbers in 2014, 2015, you remain comfortable that you should be able to fund without extra equity, for example?

Stephen M. Jones

Yes.

Robert Mackay Buchan

There's absolutely no need -- there will not be an equity issue.

Peter Epstein

Okay. That's good to hear. And can you talk about sort of what kind of production of gold and silver you're looking at once you're ramped up?

Stephen M. Jones

You mean in 2015 and beyond or...

Peter Epstein

2015 and beyond, correct.

Theresa M. Thom

For the 10 years between -- starting in '15, we average about 550,000 ounces of gold and about 25 million ounces of silver for the 10-year average.

Peter Epstein

Okay. And that's about 1 million gold equivalent ounces?

Theresa M. Thom

Exactly.

Stephen M. Jones

It is, yes.

Operator

Your next question comes from John Tumazos from John Tumazos Very Independent Research.

John Charles Tumazos - John Tumazos Very Independent Research, LLC

I want to make sure I understood sort of the big picture of the management change a couple of weeks ago. Clearly, the market value of the company fell from $4 billion to $1 billion or $2 billion, and that would create a general unhappiness. But specifically, there is the mine operation, the financing of the expansion and the plan of the expansion. I want to make sure I understand which were being mismanaged. There's no defect in the business plan for the 1 million gold equivalent ounces as I understand it, first question. Second, are the specific management changes very micro to the flow rate solution management and recovery from the current operation, and as it relates to generating cash flow, it helps satisfy covenants and finance the expanded operation? So are those 2 departments where you're making changes or are there much more? And please elaborate.

Robert Mackay Buchan

The -- it's Bob Buchan. The first thing is, as the Chair of the Board, I was part of a technical committee that met roughly every 6 weeks with the construction management to go over the construction so that we had oversight and were knowledgeable if, as and when there were any changes to that capital program, on timing and size. There would be so many issues out there with massive blowouts. We, as a board, wanted to be sure that we were knowledgeable if anything changed. And as we indicated, nothing has. So there's no problem with that. The issue that caused us the stress was the inability of the management to meet the budgets that they had set and the guidance that they had given. And when we were able to dig down, we realized that the leadership issues needed to be dealt with. And that's what we've done. We're -- as I've said to you, I still believe this is one of the biggest orebodies that exists and certainly one of the biggest orebodies in North America, and it is a good one. There's nothing wrong with the business plan that's been put together by some really good engineers and verified by outside consultants. But the implementation and the leadership that resulted in poor implementation was what we needed to fix and what we have fixed.

John Charles Tumazos - John Tumazos Very Independent Research, LLC

So you're talking, Bob, about the expansion plan, but you also are, throughout the call, discussing various current operational issues, too.

Robert Mackay Buchan

I'm not quite sure what you mean, John. The expansion plan is what we've had oversight on from the board perspective from the beginning. And I'm comfortable that the people that are managing that and the work that's being done is acceptable. There were no issues with that. The issues relating to guidance and leadership and the market's perception of leadership was the issue that we needed to deal with.

Operator

Your next question comes from the line of Dan Denbow from USAA.

Dan Denbow - USAA Investment Management Company

Just a couple of clarification questions. One, in terms of the 90,000 to 100,000 ounces you're talking about for the first half, that does not include additional ounces from the carbon receivable that still has to be worked off?

Stephen M. Jones

It does not, Dan.

Dan Denbow - USAA Investment Management Company

Okay. And secondly, in terms of full year guidance, are you still comfortable with the 220,000 to 230,000, I believe it is?

Randy Buffington

Yes, we are.

Stephen M. Jones

Yes. 225,000 to 250,000.

Dan Denbow - USAA Investment Management Company

Okay. And then lastly, a lot depends for your financing plan on the amount of production from the heap leach. What do you believe sustainable production from the heap leach for '14 will be?

Stephen M. Jones

If you look at our 43-101, it's 396,000 ounces of gold is what we're showing.

Dan Denbow - USAA Investment Management Company

And, I guess, Randy, can you comment, based upon what you've seen in changes, is that a doable -- is what's in the plan doable?

Randy Buffington

Yes, we have to execute on the construction. This includes cleaning up the north pad. It includes getting the crusher online, the expanded Merrill-Crowe. One thing to remember, from January until January of next year, we go from roughly 6,000 gallons per minute of processing to having the capability of over 27,000 gallons per minute. And next year's production at the back half of the year includes the south leach pad expansion and a section of that. So we'll actually increase the amount of ore surface area that we can leach. Currently, we were expected to buy about 4 million square feet. We shortly go up to around 7 million. And with the south pad, it gets us to 10 million square feet. With the equipment fleet, the big wire rope shovels, it's all about moving tons and tons of solution. So yes, it's a doable plan.

Operator

As there are no further questions at this time, that -- this will conclude the conference call for today. Thank you for your participation. You may now disconnect your lines.

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Source: Allied Nevada Gold's CEO Discusses Preliminary Q1 2013 Operational Results (Transcript)
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