Osisko Mining's CEO Discusses Q1 2013 Results - Earnings Call Transcript

May.10.13 | About: Osisko Mining (OSKFF)

Osisko Mining Corporation (NYSEMKT:PTN)

Q1 2013 Earnings Conference Call

May 10, 2013 9:00 am ET

Executives

Sean Roosen - President & CEO

Bryan Coates - CFO

Luc Lessard - SVP & COO

Analysts

John Hayes - BMO Capital Markets

George Topping - Stifel

Andrew Mikitchook - GMP Securities

Cosmos Chiu – CIBC

Steve Parsons - National Bank Finanical

Dan Rollins - RBC Capital Markets

Leily Omoumi - Scotiabank

Steve Butler - Canaccord Genuity

Anita Soni - Credit Suisse

James Rose - UBS

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Osisko Mining Corporation 2013 First Quarter Results Conference Call. At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. (Operator Instructions). As a reminder, this conference is being recorded.

Joining us on today's call are Sean Roosen, President and Chief Executive Officer of Osisko Mining Corporation, Bryan Coates, Chief Financial Officer and Luc Lessard, Senior Vice President and Chief Operating Officer.

I will now turn the call over to Mr. Sean Roosen. Please go ahead Mr. Roosen.

Sean Roosen

Thank you. Welcome to the Q1 Results Update. We will be doing off of PowerPoint, it’s located on our website on the front page titled Q1 2013 results. And also like to refer to you in that PowerPoint, the forward-looking statements, please read it. And take it under consideration.

I will start out with a brief overview of our company on page 3, for those of you who remember Canadian primary asset and flagship asset, currently in the fourth quarter production of over 100,000 ounces. Our Upper Beaver Project located in Kirkland Lake as well as our Hammond Reef Project in Northwestern Ontario and some greenfield exploration work underway in Mexico.

Q1 financial highlights, I will start with just a recap from yesterday’s AGM before we do get into the details. We would like to welcome (inaudible) to the Board of Directors of Osisko and then also had Norman Storm, step down and replaced by John Burzynski, as we move forward into the operating phase of Osisko’s evolution.

Q1 2013, we had sales of 95.511 ounces at cash price of about 1647 an ounce. We still had production of 106,000 ounces so we still had some unsold gold from the quarter, which we will talk about when we get to the earnings per share as well.

Net earnings are $17.4 million at $0.04 per share, earnings on a fully diluted basis compared to last year, so $0.08 per share again back to the deferred revenue from gold that was not sold in the quarter. Revenue is $159 million for the quarter compared with $158 million from 2012 Q1 results. Mine operating earnings of $55 million in 2013 and operating cash flows of $62,500,000.

Moving forward, we are reflecting slightly lower gold prices in the quarter from where we were before. Over to page 5, revenues again we stated here, the earnings from operations at $42,495,000, the earnings before tax is at $30,681,000, net earnings for the period of $17 million and again back to our $0.04 per share of earnings at this point in time.

On to page 6, as per our press release in April, we have taken a proactive approach to capital allocation 40,030 in 2014 and we have reduced our capital commitments by some $80 million leading the capital budgets for this year from $220 million down to about $140 million. Bulk of that reduction will come from delays at the seeking of the shaft at the Upper Beaver Project at Kirkland Lake where we have completed the taller set and we are at the point of starting the head frame construction that’s a good place to take a natural break. We are looking at engineering and optimizations for cost savings on the construction of that project as we move forward, we see the mine building cost may come down in the mere to mid-term and help us with the cost of that project as we looked into the rest of the 2013 and to 2014.

We also had a new discovery at Upper Beaver at north that we’re need some more understanding that may help us on the economics, the earlier stage economics of the project. So we want to take that into consideration with the evolution that I told as well. Hammond Reef is really in a standby mode, EIA has been submitted to the government both the federal and provincial governments for comment. We are hoping to have the final EIA accepted sometime this year, early 2014. Not a lot of money to spend between here and there. We reduced our budget to about $7 million for this year which completes all the work required to finish that EIA process and set the stage for a review of that project when we see that the market looks like in 2013/2014.

Mexico was completed Phase 1 growth program which was really more of a skeleton program. Some results will be coming out of that shortly. While, we have cut the budget there by about approximately $4 million, we have seen a quite bit of evolution there. We worked over 11,000 square kilometers and we reached down to 9600 square kilometers and right now we are waiting for some significant results to come from the stream setting the work that will help us fill in the map there, will guide us to the next phase. We have about (114,000) on that property at this point in time.

On page 7, there has been some changes in accounting policy and I’m going to ask Bryan Coates, our Chief Financial Officer and Senior VP to take you through what the meaning of these new accounting changes or how do they affect our cost reporting.

Bryan Coates

Sure. Thanks Sean.

First of all, as you are aware our 2011 comparable amounts have been restated to reflect these new changes. We have adopted IFRS a couple of years back. And then the governing body have been looking at various issues regarding mining. The key aspect relates to open pit development and it was adopted this year. We adopted in the first quarter, we have to restate up to January 1, 2012. And really the principle comes back into saying what you have to do basically allocate what your ore body looks like, give it some zones. And then you try to see if there are stripping that you do to gain access to ore that is sort of out of the unusual aspects and gives you better access to ore.

So basically what we did is, we sat down with the mine engineering folks and the mine planning. And we identified basically five areas in Canadian Malartic and those have been highlighted to you Canadian Malatric, the Phase 1, Phase 2, Phase 3. Phase 3 being the Barnett extension, Phase 1 and 2 is what we are currently lining. The Jeffrey Zone is in adjacent area and the Goldie Zone is another area.

So basically what we do is, we take a look every month what is our mining costs and how that get allocated to Phase 1, Phase 2 and where the strip ratio exceeds the life of pit, the life of area, we basically defer the waste cost related to expenses.

On page 8, what we’ve highlighted to you is Phase 1, Phase 2, what the component wise is, so the strip ratio 2.2 on Phase I and 1.6 on Phase 2 and we are showing you the ranges of where we monitored in the first quarter on various ratios and then you can understand that we’ve basically deferred some cost. What’s unusual for some of us that have been in this business for a long time, it’s similar to the waste to ore ratio that we used to do but in the old days what we used to do is, is to bring back to the constant rate and in the cash cost, the stripping that has been pre-done and if I may say so with a life line and back into cash cost.

Under the current system, what we are required to do now is to defer during the strip period and then the cost come back in amortization rather than as a cash cost component. We’ve also given you on page 8 the variation on each quarter. Obviously, there is some fluctuations that will happen whether it’s based on the impact of the gold production on the cost grounds on the amount of stripping that we have done, will have an impact on the cash cost during the month.

The other aspect that we want to highlight to you there is difference between sort of the increase in stripping activity asset and cash cost, it is sometimes a little bit of a difference that difference relates to the movement within the various stock pile operations. I know this is complicated not always tried -- what our profession does, what they try to make things simple but if you have any further questions, we certainly you can contact myself or VP controller and we’ll able to go through that. So, Sean, that’s in summary what the changes are.

Sean Roosen

Thank you, Bryan.

Just moving on page 9, our capital expenditures we have come back with a revised capital expenditure budget at this point in time totaling $147 million, on Canadian Malartic we have $81 million allocated this year about 29 million that is in overburden removal in top of drilling, the rest is going into replacement components for the mine fleet as we go through the normal cycle on the mining fleet part of our sustaining capital of the $81 million about $50 million is normal sustaining capital and the rest is over removal.

On Hammond Reef, we basically got into the EIA, we’re waiting for the comments to come back on that, some are closer cost to close an account and the rest of it is included in that. In the Upper Beaver project, we revised our budget to $18 million which is included the collar work we did in Q1 as well as significant amount of drilling that was done there as well. Exploration is reduced by 10 million, with $32 million in the budget right now, we had about just under 660,000 we drilled, on the Queenston ground since the beginning of the year, exploration expense as you see here is another $9 million in addition to that as we move through.

On the page 10, the operating highlights we hit 47,000 times per day on a calendar day basis, which is a big improvement. Again, we continued to march towards our name plate of 55,000 tons a day. And we achieved 48 tons a day on operating day basis. We also achieved significant availability on the mill in Q1 where +95% reliability in the quarter. So, that’s a good progress on the mill as well.

Q1, we also commissioned a pebbled crusher which is the last piece of the component on our update program to be installed. And we saw the results of that as we walk through to March where we had 51,000 tons they achieved on a calendar day basis. There were no scheduled shutdowns and maintenance during the month of March. So it shows that we can, whether can get there that was on a calendar day basis. So good progress especially in March, in March we also produced over 42,000 ounces for the month which is our best month of production thus far. And the quarter was 106,000 ounces.

Q1 also recall, we have January, February where we have the coldest months of the year, which is always a challenge. So I’m very happy with the performance of the team to get us through that and then into March pretty good production for Q1 and excellent production for March.

Average grade was 0.88 as you recall, our goal is to run around 0.9 for the first half of the year and then higher grade for the second half of the year. So pretty much where we thought we would be. And average recoveries held in at 88% which is requires than what we have anticipated at this point in time.

Page 11 shows the evolution. Over the quarter, so we have now gone 5 quarters and plus 90,000 ounces window, so I take the minus relatively stable where we are now as we push for the next level to get to our main play production and to set the stage, to figure out acquiring 85,000 to 510,000 ounces for this year.

Overall cash cost came down to $804 for the quarter, a production of the 106,000 ounces, so that’s – that’s our best quarter cash cost wise so far. We hope to see that continuing on to come down, have to meet our 785, 825 guidance for the year. And it’s like we are on path to do that.

Over to page 12, performance we have 4.2 million tons relative for the quarter, an average throughput of 47,000 tons per day. And we can see the evolution as we look back to the quarter. And I think what’s interesting to look at as well to differentiate extremely talented throughput and the operating day’s throughput as we gave more availability those two numbers get closer and closer together.

Page 13, we wanted to show you a little bit about the pit looks like as you can see here, it has been evolving. The portion of the pit behind the berm closest to our, close to the bottom of the page here is the north pit wall area which has been a key ingredient to moving forward on our guidance. We achieved and restated operating accretions from the government of Quebec in a form of new the mining decree in February, we will set the stage for us to reactivate operations in the north pit wall area started moving in there in February and March, and quite active in there now on our goals to mine about 2 million tons per month of combined ore and waste from the north pit wall, so that we can catch up with where we wanted to be because we now have about 4, 5 bench differential between the south side of the pit and the north side of the pit which for us to really hit our stride. We need to bring those benches down on the north pit wall, it’s the primary issue here.

Strip ratio you have about 2.48 to 1. We are pushing hard to get some extra lease out of the way to set the stage for some great management as we push into the second half of the year. We had some loading equipment that beat up a little bit during the winter months, sometimes winter months pass furiously, and we will get a little bit increase in maintenance. So we see that effect usually the month after. And then we also have 1.7% downtime due to noise and weather, which is mostly related to wind direction if we get the wind directly from the south to the north usually in the later hours of the day between 7 pm and 5 am, we have to reduce operations to comply with our noise requirements.

Modified operating parameters of the Canadian, we are on page 14 again just more than up due you can see the snow covered area next to the berm would be in the north pit wall area. And we moved back in there and we are pushing hard now on to get those benches going. We recall we have the crown pillars blast in this area last year as well. With blast of several other crown pillars and as we get control of those old mine workings set the stage for us to push on to higher throughputs, definitely on higher correction from the pit.

So that’s been a key aspect, number one operations for the mining team as we get into it. To demonstrate why that’s important, we go to page 15, the bottom right folder shows the pit area and you can see in some cases mining workings in those areas and then as you can see image on the left, shows the higher grade ore body as its being exposed as we mine the waste. The ore body is somewhat consociate and then we have to mine the plugged ways that sits in the middle to expose the higher grade of zones.

The larger image on the top of the page shows the deposit by grade material plus the target color is posted red being higher grades, so you can see there is a lot of high grade material in that north pit wall that we would like to have contributing as we get through came to it in Q3, we want those holes to be close to us.

So again, we are trying to mine about 2 million tons per month from those area right now. And it was around the old mine working. So we are getting better at that each and everyday but we are trying to catch up because were not working in those areas in 2012 and into the first two months of Q1.

Page 16, you can see the evolution of cash cost, we came out bang on $20 for the first quarter with our milling cost at $8.74 and our mining cost got $8.95 plus G&A at $2.30. Key to our mining cost, we were in the north pit wall from the early benches we have to use play rock suppression by placing glass nuts and sometimes a sand there on top of it. And we also have to use a smaller glass hole and drill site inch blast hole into Ontario as opposed to 8-inch in the lower area. So we will see our cash cost come down significantly as we get to the lower benches and we are able to reduce those operations from the glassing amounts and drill what size we will see those plastic wall with the depth to the pit.

We are also getting better, we are seeing increased throughput improved efficiencies and we have also reduced the significant presences of contractors on site. And with the commissioning of the pebble crusher Q2 will be the first quarter by which we have lot of machine piece of equipment. In the north, and we have shovel left that’s commissioning in the pit. But we are stable on the commissioning of everything that we introduced last year which was quite some change. So we are looking forward to running without too many commissioning operations on the go, where we think focuses on optimization and availability.

Q1 cost per ton or $2.56 which is net cost we have achieved thus far plus getting deeper into the pit with more throughput – more output from the pit and gaining more stability from our equipment in those operations.

Our guidance for half of 2013, first half of the year, we wanted to run about 50,000 tons per day. We are getting close. March is an indicator hopefully we can do that. And then in H2, we are looking for 53,000 to 55,000 tons a day, marginalized break for the year should be about 1 gram (inaudible) about 87% at this point in time.

Cash cost, we hope to see 783 to 825, however, the way you are asking, Canadian dollar is working there is some variation on the theme and was about 2/3rds of our operating cost being Canadian dollars.

Cash grade now as we sit today just under $140 million, working capital of $68 million and debt of $335 million that sets a 2.716 billion and shareholders equity is now 2.18 billion for companies started in 2005 and with shareholder equity of 1.5 million. And also have undrawn credit facility with kind of a pension plan per $100 million, late term drive down at 7.5 percentages. And December 31, 2013 we will be looking at the balance sheet as we get into the second half of the year. And we will see how we drove on that front.

And at this point in time, there is some more information within the appendix, but I think we will like to go to Q&A session right now if we could. Thank you very much for listening and we will be glad to take your questions now.

Sean Roosen

Yes, operator we are ready for questions.

Question-and-Answer Session

Operator

I’m sorry. Thank you. (Operator Instructions)

Sean Roosen

Just experiencing a technical delay here, hopefully it will be resolved in a second.

Operator

I’m sorry about that yes, just a moment. I’m sorry for the delay. We do have a question coming from the line of John Hayes with BMO Capital Markets. Please proceed with your question.

John Hayes - BMO Capital Markets

Thank you. Sean, I just wanted a question on how we are to look at the deferred stripping over the rest of 2013 and what would likely, I know you’ve given roughly that is like 50 bucks an ounce but is there anyways that breaks out of recorded, so you get a better idea of what’s impact on earnings will be?

Sean Roosen

Both are same John, I think if you go right across the quarter it’s about $50 per ounce I think, I don’t that you should – your model should be off that materially.

John Hayes - BMO Capital Markets

So, is it, in fact kind of like on a year-by-year basis, as you can try to give that kind of that’s obviously, it’s a very detailed thing that happens by the time you’ve got the quarter done you can figure this out more closely for accounting purposes but for guidance purposes, will you be providing that on an ongoing basis?

Sean Roosen

We’ll provide you with what has happened in the quarter and we’ll improve our disclosure to make sure that you can follow it.

John Hayes - BMO Capital Markets

Okay.

Sean Roosen

So, I think that’s the biggest challenge when we look at it, we modeling again whole bunch of things that you guys are aware of Canadian Malartic and the flexibility that we need and depending on various conditions. We need the flexibility but I think when we look at it and step back, we said that it’s about $50 per ounce.

John Hayes - BMO Capital Markets

Okay. And the second question is on the mill availability it seemed to be continuously improving, I was just wondering what’s driving that at present?

Sean Roosen

Lack of commissioning. We said all technicians and continental technicians and fewer other guys. So every time you know we can get rid of pick up that’s wanted to touch on work on the ramp up that makes it easier for us to continue to ramp up with one. So, we had less trans steel in the cone crusher. So that also help us pluses stability of having run the two secondary cone crushers for six months now with pretty much get all the troubleshooting on those two units as you were recalled and was still on the reserve, it was 001 and 002. So we went through quite a bit of heating with those units but we’ve seen to have relatively good control on them now.

John Hayes - BMO Capital Markets

Okay. And novel issues with the loaders, they have been resolved the laternals, did they join some things?

Sean Roosen

Yeah, laternals all the call back items that we had from metallurgical standpoint have been completed on litherms, had relatively good availability on the laternals about 75% which were reloader as suppose good as we get.

John Hayes - BMO Capital Markets

Perfect. Thank you.

Operator

Thank you. Our next question coming from the line of George Topping with Stifel. Please proceed with your question.

George Topping - Stifel

That’s great. Thanks. Hi, Sean and everyone. See Sean or Bryan, what CapEx from the stripping is in last pick CapEx for this year, the revised CapEx from the last pick?

Bryan Coates

About 50 again George it’s about $50 per ounce.

George Topping - Stifel

(inaudible) dollars but I guess (inaudible).

Bryan Coates

Yeah, so rough you’re looking at 400,000 ounces at $50.

George Topping - Stifel

All right.

Sean Roosen

And in addition to that, we’ve got some of the overburden striping that we’re doing on, on some of the other areas that are included in these calculations.

Bryan Coates

Original budget George for the year was around $29 million, it was probably around 21 million the number you’re looking for?

George Topping - Stifel

Yeah. 21 million all right. Just on the grades, any new thoughts on where you end up that from Q2 to Q4 this year?

Sean Roosen

We are working on a mine plan as we go around these all stokes George, so we have sort of plan A, B and C that’s always get us to the same answer that we’ll achieve about one gram marginalized for the year.

George Topping - Stifel

One gram in the year.

Sean Roosen

That’s how our goal.

George Topping - Stifel

All right. The full financials and MD&A, one more they will be on the list?

Sean Roosen

They should be filed on Wednesday, on Monday sorry.

George Topping - Stifel

On Monday. Not perfect, that would do for me, I’ll pass it on to others. Thank you.

Sean Roosen

Thanks George.

Bryan Coates

Okay, George.

Operator

Thank you. Our next question coming from the line of Andrew Mikitchook with GMP Securities. Please proceed with your question.

Andrew Mikitchook - GMP Securities

Hi, good morning gentlemen, congratulations on all the improvement. Can you just give us some verbal guidance on how long it will take to settle the pits in terms of, I guess flattening the pit bottom and you gave us quite a bit of detail on the flattening, the standing issues and drill hole diameter issues but how long does it, should take or could it take to standardize that?

Sean Roosen

Well, we had a lot of issues that we worked through we’ re paying for now they came to us from last year. And overall sort of waste management, we’re probably about 7 or 8 months behind on the North pit wall and a lot of things have happened last year. We’re playing catch up our guidance reflects that 485,000 to 500,000 ounces assumes that we would have to do that catch up work. So I think we’re seeing that is getting better each and every day but it’s going to take us probably through to the end of the year before we would say that this in our pit wall is back where, there where we have hoped that would be so that’s the evolution on that area.

Andrew Mikitchook - GMP Securities

Okay. So, and just in terms of the impact on cost, we see kind of incremental improvements in the mining cost from the dollars per ton that you keep disclosing (inaudible). But that would, we should continue to see improvements all year as you reduce all these activities that you have to do.

Sean Roosen

Correct. I mean there are sound fluctuations there when we’re concentrated on the upper benches on the smaller glass hole across the higher. So, if we’re mining, we are on those benches in the quarter than we could have higher costs as compared to, if we are down or lower on the benches where on the 18.5 inch glass hole with no further (inaudible).

Andrew Mikitchook - GMP Securities

Okay.

Sean Roosen

So, it doesn’t change there but we should continue to come down just, that is our friend with this project and the deeper we get they are costlier.

Andrew Mikitchook - GMP Securities

And in the mill that there should be less, you should be nearing the end of the improvement as you said you send out the contract large amount of the contracts or home, Q2 will be the first quarter of hopefully operating on a normalized basis, is that reasonable to expect?

Sean Roosen

Yeah, I think we did a schedule shut down at the beginning of April with 5.5 days, we got branding steel and everything so now we are in the pursuit for the rest of the quarter.

Andrew Mikitchook - GMP Securities

Okay. And then I just switching topics on this Hammond Reef, you just go -- someone take us through the -- but the timeline of -- once you have this EIA approved, what would be the conceptual permitting timeline and effort beyond that in terms of obviously time but also in cash to get benefits permitted.

Sean Roosen

Already now we’re just focused on finishing up the EIA in terms of the final mine permit we would look that in 2014. But it’s probably close to 12 months process gestation time for that project of the EIAs is the key ingredient. We had about 550 some comments back so far, we’ve remedied most of those. So, it’s in a normal bureaucratic process at this point in time. We don't see anything. There is nothing in the comments back to us at this point in time, it was, that was not answerable based on the studies that we have in can so you know we should be in a fairly normal permitting track to that project.

Andrew Mikitchook - GMP Securities

Okay. And, and that’s largely independent of the feasibility that you’re expecting late this year as well?

Sean Roosen

Correct.

Andrew Mikitchook - GMP Securities

Okay. Thank you very much. I’ll let others ask questions.

Operator

Thank you. Our next question is coming from the line of Cosmos Chiu with CIBC. Please proceed with your question.

Cosmos Chiu – CIBC

Good morning guys. I got a few questions here, maybe first up on the CapEx in terms of your revised budget of $147 million CapEx for the year, how much was spent in Q1?

Bryan Coates

About $56 million.

Cosmos Chiu - CIBC

Okay. And then maybe taking deeper into it you know I see that the part of the decrease came from actually Canadian Malartic actually surprised by the amount or the degree of cutting a Canadian Malartic, is it due to some of the anticipated spending at by the Barnett zone and that’s been pushed back or might unclear on the front?

Bryan Coates

Yeah, we first talk little bit of removal at Barnett probably in the first half of 2014, it doesn’t really affect our current mine schedule, if we can do it faster based on those conditions. We like to be optimizing our contractors and rather than having 50 trucks on site, we would rather have 20 over a longer period. So, that was the strategy there was just to take a step back clearly what we see, how this market shapes up then we will push into that next year.

Cosmos Chiu - CIBC

Great. And I guess earlier this week maybe switching gears a little bit we saw that the Quebec government now has new proposed changes to mining taxes in the province, at this point in time, hopefully you’ve done some kind of analysis on it but would you be able to give us some guidance in terms of how we should look at the tax changes you know 2013 and maybe even you know further on as well.

Bryan Coates

Okay, very good question and maybe let’s step back and see what the government has done.

Cosmos Chiu - CIBC

Okay.

Bryan Coates

Lot of discussions that happened over the past six months and I would even say while the current government was in opposition, they put some pretty put strong position against the mining industry. On Monday, we were quite pleased when the results came out because it was the end for our view of the uncertainty and we could get over this discussions and keep our investors bring them back into a more forward focus with an understanding of the rules. The government has made basically two changes. One of them is that it established a minimum royalty tax that you are going to have to pay. And all these measures coming to effect on January 1, 2014.

Cosmos Chiu - CIBC

Okay.

Bryan Coates

So the first thing we did was they sent the -- if you operate a mine, you’ll pay 1%, up to 80 million or 4% above that amount on a formula which comes back to basically the pit smelter up the shaft. And they said that’s what is going to happen there. And that can apply. If we had applying that to system in the earlier stages in 2011, 2012, 2013, would have probably been looking on average about $20 million per year. Then they modified their tax on profits, the current regime has a 16% tax on mining profits once you basically recapture all your investments.

They’ve come back and they said we’re going to tax you on a formula based on your gross margin and that rate is progressive and the rate goes from 16% on the first tranches which is 0% to 35%, 22% from 35% to 50% and above 50%, you would be taxed in a rate of 28%. So, if you are taxed at the highest rate which being you would be benefiting from great, not only great operating margins but even in the environment of strong prices, you will be taxed at 22.9% on the mining duties.

Cosmos Chiu - CIBC

Okay.

Bryan Coates

Remember the mining duties are deductible from provincial and Federal tax. What’s the impact for us, 2013 nothing, 2014 for us we are basically going into after three years of operation we are basically going into the area of being taxable. So we will paying on profit and again it depends what the price environment you are offering in. But under the current price environment you would be looking at probably the same to maybe half point more than we are experienced now. So anywhere between 16% and 16.5%.

Cosmos Chiu - CIBC

And that’s due to additional deductions that might be allowed under the new mining code, is that like --

Bryan Coates

While they have done, but they have done that but they have also its on the process margin et cetera. But overall, I think it was a from the industries point of view from the government’s point of view I think it was a responsible and a reasonable modification that we have brought.

Cosmos Chiu - CIBC

Good. It seems like its more a 7% increase in taxes, from 16% to like 22.9% --

Bryan Coates

To be in that 22% range you would have to – we would be looking at some pretty solid gold prices. And Sean said we would be happy to be paying those taxes.

Cosmos Chiu - CIBC

Yeah, okay. And (inaudible) either or right, so you pay either the higher of the 1% to 4% “royalty” or 16% to 23% which everyone is hire, but you are not going to pay both?

Bryan Coates

That’s correct. And if you pay the minimum royalty and supply to yours when you have the tax base profit.

Cosmos Chiu - CIBC

Okay, great. Maybe another question for you Bryan, in terms of the IFRS, when does the impact reverse because right now the – you get the positive adjustment of about $50 announced due to the fact that you have a higher strip ratio but I would imagine that kind of impact reverses when the strip ratio is lower than your average strip ratio for the mine itself. So when should we kind of – when is the turning point do you think in terms of that impact reversing.

Bryan Coates

So probably about 2.17, 2.18 and if you look at it conceptually its when the pit at its depth and its – the biggest part is the balance source opened up. And that will be coming back through depreciation.

Cosmos Chiu - CIBC

Okay. And maybe a follow-up question, in terms of, I guess the industry is kind of moving to all and sustaining half backs or the cash cost number and changes like the first strip or not the first strip, the capitalized strip, it would have really impacted your cash cost number, if you looked at all end sustaining CapEx or in cash cost number. Have you done that exercise for fiscal, Bryan, in terms of – what you mean that could look like?

Bryan Coates

As you know that the whole discussion is fairly controversial because on what you are including on your cash flow, I think you guys issued a comment on that basis also. And I think if you are looking at real sustaining capital and the stripping and all that. I think we would probably coming in about 1000. I mean (inaudible). Then you have to add on the development and expansion capital et cetera. But that’s where I would see us today. I think that the key issues that we have to do as an industry if we are going to talk about this all in cash cost. As we don’t have to get a pretty solid definition of what is – what each component is included on. And what’s – so that’s what I would comment on.

Cosmos Chiu - CIBC

Great. Thanks that’s all I have. Thank you.

Bryan Coates

Thank you.

Operator

Thank you. Our next question coming from the line of Steve Parsons with National Bank Financial. Please proceed with your question.

Steve Parsons - National Bank Finanical

Yeah. Good morning, guys. Thanks. Few questions, just need to follow up on George Topping’s question on the grade and I think Sean you were saying you looked at various plans and whatever you have looked at, it keeps coming back as one gram a ton for 2013. Are you finding that one gram a ton is maybe more backend loaded than you expected previously, what’s the sequencing look like on gram a ton?

Sean Roosen

Where we thought we were. If you look at the grade model that I showed you in the PowerPoint, you can see that our pit wall (inaudible). We need to get the waste mining in the north pit wall to expose the higher grade material as we go to reset the mining at the beginning of the year based on the assumptions that we are working on right now. We were able to access that area and start working in the first quarter. And some of our assumption have to assume that would are going to be some of the second quarter we had access in there. So, the way we see it right now pretty much where we thought it would be

Steve Parsons - National Bank Finanical

Okay. Just a follow up on little bit on the March production, obviously, get your operation time or get availability. There are still a lot of work that will get 55, so, you got a couple of crushers in place they are commissioned. What’s going to get you to that 50-51 like it March, with the good availabilities up to the 55.

Sean Roosen

It all starts on the pit floor, if we get good breakage from the blasting, if we are doing the blasting correct things go pretty well. We stay away from cramp steel. We don’t block too many chutes, we can get it done, so it’s a natural evolution from here on in, now we are going to see where we are get to this quarter. As we assume that our run rate will start full of ranches.

Steve Parsons - National Bank Finanical

See, suggesting that you’re more constrained in the mine than you are in the north?

Sean Roosen

Certainly is the nearest surface material is harder to handle, and we don’t get this instead of fragmentation and the early benches has been doing the deeper ones. So, the better the mark, the better everything goes.

Steve Parsons - National Bank Finanical

And just a follow-up again on the last on the tax question. Right to indicate, you are going to be taxable in 14 to 16 confirm, this is cash taxable in 14?

Bryan Coates

Cash tractable on mining duties? And when we look at federal, we are probably 217, 218 because of the fact that we can use some of the expenses and investments we made on our Ontario projects, and on Quebec, would be coming in probably on 216 for cash taxes.

Steve Parsons - National Bank Finanical

Got it. Okay, great thanks.

Sean Roosen

Thanks.

Operator

Thank you. Our next question is coming from the line of Dan Rollins with RBC Capital Markets. Please proceed with your question.

Dan Rollins - RBC Capital Markets

Yeah, thanks very much and good morning everyone. Two quick questions, one just on the G&A cost for this quarter 2.30 versus 1.92 the last quarter. Obviously that’s going to having slow but with the increased tonnage, was there anything specific to Q1 than we saw the per unit G&A cost up?

Bryan Coates

No, there is nothing in there that’s unusual, just, it may be some of the differences on the timings on expenditures, but nothing of the….

Dan Rollins - RBC Capital Markets

Okay, perfect. And maybe what’s the good sort of life in mining as to (inaudible) 2 to 25?

Bryan Coates

Yeah, I think that’s a number that’s doable.

Dan Rollins - RBC Capital Markets

Perfect. Sean, maybe could you talk when we might be able to see some of the results from there, but I guess you are doing about 5-6 people in the Upper Beaver, I was wondering when we might start to see some of those exploration results coming through the newswires?

Sean Roosen

Yeah, those holes are probably was, I will say two to three weeks of (tiding), so rolled at it, I would say logging, we will have it probably at the earliest late June, early July.

Dan Rollins - RBC Capital Markets

Okay. And then with respect to Mexico, any idea when we might see initial results from your groundwork there?

Sean Roosen

We are probably doing and we are just waiting for some reports to come back, some of these ones that we drilled in are significant amount of structural to understand. So just want to make sure that we get that right and we will probably put that nothing too spectacular, those were mostly schedules to try and understand structure.

I have had some intercepts that are significantly mineralized, but we haven’t been able to, we haven’t gone back into any infilling drilling, so there is single hits, as much as 2 km apart. So we are going back to that work rate now, we have also – we got some targets that are higher priority. We are not really going back to follow up or anything right now, as we need to reduce to size of this project, we are spread out over 9,600 square km right now. So we are trying to tighten up on that rate now, because the second half of the year with the reduction in budget, we touched some of that drilling in the short term. So, it will be second half of the year before you really see much in terms of tangibles and what we are trying to evaluate these targets in terms of priority right now, so, still early days.

Dan Rollins - RBC Capital Markets

Perfect little, thanks very much. That’s all I have guys. Have a good weekend.

Sean Roosen

Thanks.

Operator

Thank you. Our next question coming from the line of Leily Omoumi with Scotiabank. Please proceed with your question.

Leily Omoumi - Scotiabank

Good morning, guys. Most of my questions have been answered just a couple more. I joined the line a little late, apologize if you have addressed. I was wondering, if you could just provide a breakdown of the CapEx standing by mine and property, the $65 million?

Sean Roosen

You’re looking for the – what we spent on the mine.

Leily Omoumi - Scotiabank

(inaudible) Upper Beaver et cetera.

Bryan Coates

Basically at Malartic $35 million, Upper Beaver is about three, sorry five, Upper Beaver and Hammond Reef three and exploration were not in the rest of the amount.

Sean Roosen

Mostly the exploration expenditures would have been a decrease in properties and most of that would have been within the Upper Beaver Project.

Leily Omoumi - Scotiabank

Okay. And then to the exploration, our expense would have been in Mexico and elsewhere.

Bryan Coates

Mexico would have been about $3 million for the quarter and may be $1.5 million in another project so thought of finishing up.

Leily Omoumi - Scotiabank

And the exploration expense what we find Q1 is that kind of – is there run rate for the remainder of the year.

Bryan Coates

No, it will be significantly less, Q1 was a big drove fashion. We had almost 60,000 units drilling in Q1 and we’ll have less than 10,000 meters in Q2 and may be 10,000 in the second half of the year depending on success of those (inaudible).

Leily Omoumi - Scotiabank

Okay. Thank you. And then just particularly you mentioned obviously March was a great one for them, because there were no shutdowns or commissioning. When do you expect you will have another shutdown that coming – in the coming months and can you provide us any kind of links and update on just let’s know how things are going in April and May.

Sean Roosen

Yeah, as we said, we went through our maintenance program at the beginning of April. We got first deal and everything so, we’re pushing hard. We don’t see any particular issues in April. We are doing our thing and starting to take advantage of the spring. We did go to the breakout, we had a little bit of pumping to do, but nothing that really inferred with good operation. The mill is doing its thing and we will do a pretty good turnaround on our scheduled maintenance, we had about 250 people on site in 5.5 days and get a lot of things I would say.

So, we continue to do that and we are looking for probably our next schedule maintenance sometime and into late August. So, that’s where we are now and I’m not going to give out any particular tonnage on a month-by-month basis anywhere we reported quarterly. So, we’ll continue to do that. We are now focused on the month-by-month that’s ends in the near-term because we’ve got schedule or anything by the year end deadline indeed, but we are working around lot of the oil mine openings right now so, we see how those go and we act accordingly.

Leily Omoumi - Scotiabank

Okay, great. And then just to see lastly on top of the $147 million CapEx for the year for the stripping cost has been capitalized now, it’s $25 million to $30 million for the whole year, a reasonable number to work with.

Sean Roosen

Yes.

Leily Omoumi, Scotiabank

Okay, great. Thank you very much guys.

Sean Roosen

Thank you.

Operator

Thank you. Our next question is coming from the line of Steve Butler with Canaccord Genuity. Please proceed with your question.

Steve Butler - Canaccord Genuity

Guys, last one may be I don’t know. Is there anything left to ask I’m not sure? I wanted to ask you both the likes of mine strip ratio for Canadian Malartic gave us Phase I, Phase II, Bryan I appreciate the disclosure, but you have a light of mine strip ratio for the asset.

Bryan Coates

Yes, so (inaudible) here.

Steve Butler - Canaccord Genuity

And effectively Bryan I guess you suggested that by 2017 or 2018 as when you get reversion of these capitalized items into back into depreciation if you will, but for me to run with about of 50 bucks announced sort of number over the next 2013 through 2016 kind of thing. Is that about appropriate for capitalized stripping?

Bryan Coates

It will depend because at one point in time we are going to even now on various zones and the license line. On the strip ratio over the life of mine is 2.18, 2.2.

Steve Butler – Canaccord Genuity

2.2 to 1, okay that’s great.

Bryan Coates

But again you don’t forget the different zones and different ratios and for us to give you that to say the $50 is little bit more difficult.

Steve Butler – Canaccord Genuity

Understand, yeah, that’s it guys, thank you.

Bryan Coates

Thanks, Steve.

Operator

Thank you. Our next question is coming from the line of (indiscernible) Capital. Please proceed with your question.

Unidentified Analyst

Yeah, I think Steve actually get the last real question I had there but, I might just ask on the grade again averaging one gram around about one gram obviously have to be a little higher in the latter half of the year, what kind of a maximum grade or we likely to see?

Bryan Coates

If you go back, we will get to page 15, you can see the grey distribution in that north pit wall. So, we’re blending from different zones around the Old Stokes, some of those areas gram can be up to two, three grams. But, the envelope surrounding Old Stokes have to run around 1.2 to 1.4 gram area. And then there is pits, so high grades zone that you can see in the red spots within that area that will be slightly higher than that as well.

Unidentified Analyst

That’s fair. Up to maybe 1.2 grams in any given month or something?

Bryan Coates

Yeah, I mean it come and go, and again we’re not getting into that much detail anymore. We’re just we’re abiding for how much in that grade on a quarter by quarter basis. And then the my plan that we worked out. We know what sounds, we’re going to mine but we’re not sure with sequence that are going to happen and because the evolution of dealing with underground, deal underground workings. So, we can’t be that precise for you today.

Unidentified Analyst

Okay, thanks.

Operator

Thank you. Our next question is coming from the line of Anita Soni with Credit Suisse. Please proceed with your question.

Anita Soni - Credit Suisse

Hi, good morning guys. Most of the questions have been asked and answered, just one, two question. First, the mining cost per tone data that you gave out with that modified for 2012 for the -- I guess the new strip ratios under IFRS, correct?

Bryan Coates

Yes, they are restated amounts. So, the table has restated amounts there.

Anita Soni - Credit Suisse

The stripping cost, I think you said 21 million, that’s embedded in your CapEx for the amount that you’re going to be allocating to the -- because of IFRS?

Bryan Coates

It’s on a revised 220 is not there. So, you have to add that.

Anita Soni - Credit Suisse

Oh yes, add it back, okay. And then last, can you give me the stockpile levels that you have a Canadian Malartic on tonnage and grade?

Bryan Coates

We are about a little north of 3 million tons of stockpile right now, Anita. And we’ll probably build to 5.5, 6 million by the end of the year. Grade will vary a bit somewhere around the window between 25 and 26.

Anita Soni - Credit Suisse

Okay. So that’s something that don’t really want to dip into it right now of trying keep the mines on pace with the mill, right?

Bryan Coates

We like stockpiles are a good thing.

Anita Soni - Credit Suisse

But, I mean, its lower substantially lower than…

Sean Roosen

Yeah, exactly, I mean we are the goal is to put the lower grade material on the stockpile and feed with the highest grade material we have.

Anita Soni - Credit Suisse

Okay, great. Thank you very much.

Sean Roosen

Thank you, Anita.

Operator

Thank you. Our next question is coming from the line of James Rose with UBS. Please proceed with your question.

James Rose - UBS

Nice quarter guys, big picture philosophically, given the volatility of the gold prices, thought of holding gold back?

Bryan Coates

Yeah, this discussion is ongoing with a strategy at the board that we had some meetings this week. And we’re obviously wanted to make sure that we have all the tools on the table that are available to us. So, we haven’t chosen to do that particularly at this point in time, but we do have very sophisticated goal, sales operations in our treasury department and we tried to make sure that we at least match the BP average gold price and we try to stay with some gold on bad days. So, we are working on that but we don't have a specific trial strategy to give you today other than we tried to make sure that we don't do anything stupid within the quarter.

James Rose - UBS

Thanks.

Operator

Thank you.

Sean Roosen

One last question from George.

Operator

Thank you. Our last question coming from George Topping. Please proceed with your question.

George Topping - Stifel

Hi, great thanks. Just interested in the escrow account for $30 million Kirkland Lake, so when would you actually receive that?

Bryan Coates

Fairly soon, there is a procedure underway with just the dividing at the mining lease that had to be approved by the Ontario government because we’re in corporate transaction that were some delays in that paper work as the title had to be re-registered to Osisko and then subsequently spread re-registered to KGI, so we’re cautious and escrow was our (inaudible) we’re completing that process with the government of Ontario as soon as we can probably within next weeks.

George Topping - Stifel

All right. Good idea, escrow given the market. That touched me. Thank you.

Sean Roosen

Thanks everybody. Have a great day.

Operator

Thank you. Ladies and gentlemen that concludes our conference call. Please note that a replay of this call can be accessed as of 11 O’clock A.M. today at telephone number 1-800-558-5253 and entering passcode 21654745 followed by the pound key. This replay will be available until Midnight on May 24, 2013. Thank you, you may now disconnect your lines.

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