Stillwater Mining Co., Q4 2014 Guidance/Update Call, Jan 21, 2014

Jan.21.14 | About: Stillwater Mining (SWC)

Stillwater Mining Company (NYSE:SWC)

January 21, 2014 4:30 pm ET

Executives

Michael J. McMullen - Chief Executive Officer, President, Director, Member of Health, Safety & Environment Committee and Member of Technical & Ore Reserve Committee

Gregory A. Wing - Chief Financial Officer, Principal Accounting Officer and Vice President

Analysts

David Gagliano - Barclays Capital, Research Division

John D. Bridges - JP Morgan Chase & Co, Research Division

Sam Dubinsky - Wells Fargo Securities, LLC, Research Division

John Charles Tumazos - John Tumazos Very Independent Research, LLC

Lila Murphy

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the company strategy and 2014 guidance conference call. [Operator Instructions] Also as a reminder, this teleconference is being recorded. At this time, I will turn the conference call over to your host, President and CEO of Stillwater Mining company, Mr. Mick McMullen. Please go ahead, sir.

Michael J. McMullen

Thank you very much and thanks, everyone, for joining this afternoon. I have Greg Wing, our Chief Financial Officer, here with us with me as well. And today's call is really to update people on our strategy and our 2014 guidance. And we do have a presentation, which is available on our Investor Relations page of our website, on the stillwatermining.com website, for those of you who haven't accessed it so far.

We have, earlier today, released our 2014 -- 2013 production, and I'll discuss that later. The main purpose of today's call really is to update people on the way forward for the company. And you will note on the presentation, we have the usual forward-looking statement, and I'll draw everyone's attention to that on Page 2, and I'd like you to read that at your leisure.

So if we -- moving on to Page 3 of the presentation, Stillwater Mining company has some core strengths that really attracted me as the CEO recruit for the business. And we do have world-class PGM mining assets in a very mining-friendly jurisdiction. And that is not something that all companies can say they have these days. And we are uniquely positioned, I believe, to benefit from forecast of supply shortages.

We are benefiting from a growing industrial market demand which use substitutes for our main product, which is palladium. And our focus going forward now is on producing quality ounces and cash flow improvement. And that's possibly a deviation from previous strategy where we were more focused on the growth strategy. Now we're predominantly focused on the cash flow strategy. And if that comes with growth, so be it. But we're not focused on growth for growth's sake.

We see a significant opportunity to increase value and capacity utilization of our refining and smelting facility through some strategic supply alliances. And we have an excellent liquidity profile. We had, at the end of the September quarter, $464 million in cash and cash equivalents, and an undrawn credit facility of $96 million. And I think for a mid-tier PGM or precious metal miner, that is a fantastic liquidity position and puts us in a very strong position.

Our focus going forward is on PGM assets in low geopolitical risk jurisdictions. And I think, again, that is a clear strategy that we want to get across to the market out of today's discussion. That is our focus going forward. Moving to the next slide, we have 4 areas that we're focused on for change, and they are operational improvements, financial optimization, portfolio management and corporate governance. And I'll talk to each of those in some detail over the following slides.

Operational improvements. We have 3 key areas of operations at this point, which are mining, processing and recycling. And firstly, across the whole business, we want to maintain and improve our safety and environmental excellence.

Key to us is maintaining our social license to operate and making sure that our people are safe. That must be the basic tenet of any business on a go forward basis, particularly for us, where we have very long mine lives. And so it's very important to us to maintain our social license. In the mining area, we want to maximize the value of output from the Montana mines.

We want to improve productivity and we want to reduce production cost. And I have a slide coming up shortly, which will talk to all of these. In the processing area, again, we want to maximize value of output from our Montana mills. We want to improve productivity and reduce our production cost. And we want to optimize performance of our metallurgical facilities and fill existing capacity.

In the recycling business, this is a business which hasn't, in the past, I think, had very good visibility in the marketplace. And actually, it's one of our core business units. We see significant potential here to increase tolling volume and secure supply of additional material, and also to invest in new technologies. And you will see going forward in our future press releases, that our recycling business is going to become more and more to the forefront because, again, we believe we have a world-class operations in the recycling business group.

On the financial optimization. A key tenet of that is capital allocation. So our capital allocation priorities are now focused on strong payback projects. We will not invest capital in projects which don't provide an adequate financial return to our shareholders. And I hope that by the end of this presentation, that our shareholders and analysts will understand that the focus of the business going forward is to provide a return to shareholders. We intend to optimize our capital structure. Again, our focus is on returns to shareholders. We would like, at some stage, to be able to provide a return to our shareholders.

Cost reductions. Our intention is to reduce our ounce -- per ounce cost across our operations while focusing on long-term value and safety. Again, we have a very long-term business plan here. There is -- we can do certain things which would give us a much better return in the short term, but would mortgage or impinge on our long-term ability to operate. So we are going to do things that will reduce our costs, but also preserve the long-term value of the business.

We are reducing our expenses in areas that don't impact operational safety performance. And we're controlling our holding costs with some of our portfolio, while retaining optionality of those development and exploration projects. You will see 2 graphs to the right here. Our 2014 guidance for the marketing, G&A, research and development, exploration, approximately a 40% fall from 2013 actual spend. A similar pattern for our project, capital expenditure and overheads between 2013 and 2014 guidance, about 40% fall in spend. And these translate into some quite significant dollar savings if you have to look at the millions of dollars on the left-hand axes of both those graphs.

On capital expenditures, we will minimize investments in non-core assets with a focus on maintaining long-term optionality. Again, this comes back to capital allocation priorities, where we invest our money in things that will make returns for our shareholders.

The next slide, in terms of our mining improvement, our lower cost ounces. So we're looking to focus on maximizing our high-margin production ounces, and we're going to measure our costs against fully loaded costs. So including SG&A, maintenance capital expenditures, so on an all-in basis. We can see some substantial potential to improve worker productivity and allot our resources to a more mining-focused workforce. We would like to increase utilization at both our mills to improve returns.

Both our facilities are running at below full capacity, in particular, East Boulder, which is running at approximately 1,300-ton per day versus a 2,000-ton per day capacity. So we had significant in-built latent capacity. Fully expensed CapEx has been spent on these things, and our challenge now and the challenge that I'm issuing to our management teams is to fill those facilities up.

We can see some potential to increase mill recovery rates. And the current low attrition rate we have provides us some opportunities to scale back successful recruiting and training programs, while managing our total workforce. So historically, in the past, the company has had, at times, relatively high attrition rates, which is high worker turnover. The company has been proactive in terms of managing that and implementing some training programs. And that's been very successful in reducing our worker turnover rate very significantly. And that now has put us in a very strong position.

On the financial measures, we are challenging all of our costs. So we're going back to basics at this company and looking at our costs from the bottom-up, and looking at all areas that we can save money. We're significantly reducing our costs that don't directly impact on producing our profitable PGM ounces or compromise safety or impact on our environmental standards.

We have, starting with my compensation, commenced restructuring executive remuneration and compensation packages so that our outcomes are more closely aligned with profitability and shareholder outcomes. And I think that's a key thing that shareholders were quite keen to see, and the board has taken note of that and that's the new structure that's in place.

We're empowering our site managers to be responsible for costs and to be accountable for cost control. We've made some organizational changes, which I think will allow our site managers to have better control of their costs, but also, importantly, will allow the board and myself to hold people accountable so that we know who's in charge of what cost and that we can then drive those costs down. We're looking to optimize our working capital position at our metal sales procedure so that we can achieve a higher pricing and potentially have a better outcome for shareholders in terms of our working capital.

Moving on to the next slide, the Altar project, it's a non-core mining asset for us. It is not a PGM asset, it is copper. And therefore, it's non-core. We still see that it has significant latent value as a project. On the top right-hand table, you will see the change in the resource estimate. It's increased quite significantly since the company purchased the asset. And there is another table or graph below it which lists the world's top 20 by metal predevelopment copper assets.

And those of you with a calculator can work out, based on the tonnages and grades above, that we would fall or rank about the middle of that list. So this is in the -- roundabout in the top 10 to 15 undeveloped copper assets globally. We did take an impairment charge on this asset in the third quarter of last year, and we felt that was appropriate given the current market conditions.

And further material investment by us in this asset is on hold given our corporate focus and market conditions. We are conducting a strategic review of the asset. And we have given guidance previously that we'll spend a notable amount of money on that -- on this asset during 2014. Greg, I think 3 -- circa $3 million, I think, we...

Gregory A. Wing

It turned out to be $3 million to $4 million, that's correct.

Michael J. McMullen

In that area. And really, we're doing that to maintain our long-term optionality on this asset. We do believe it has significant latent value in it. But I think it's important for shareholders to understand that the spend that we're forecasting and planning on over the next year or 2 on this is relatively modest in comparison to previous years.

Going over to the next slide, the Marathon project. This gives us optionality in the PGM space. The project does fit within our strategy of focusing on PGM assets in low political risk jurisdictions. It's in Canada, it's a PGM predominantly with some copper asset.

But also, very importantly, is we do have a very high quality joint venture partner here in the form of Mitsubishi. They hold a 25% stake and we hold a 75% stake. Our estimated maximum spend for this calendar year is in the range of $5 million to $10 million, which is basically on completion of feasibility study, some option studies and some permitting work. And importantly, there'll be no new cash calls from the partners required in 2014.

Again, I think that's one of the key things that people need to understand, is that the cash call requirement from us in this year is minimal. We're committed to completing the feasibility study and a project optimization process. We are undertaking a strategic review, including looking at the carrying value of the asset. And further material capital will only be committed by us if this project demonstrates suitable financial returns.

Again, we are ranking all of our development, both in Montana and outside Montana, opportunities, and each of those development opportunities has to compete with each other for capital, and we will only commit capital if it generates a suitable return for shareholders. Assuming that the project makes those financial hurdles, the best case scenario would be to commence construction in the medium term. It is unlikely we would do anything on this in the very near term.

Setting over the slide on the corporate governance. Under leadership, we have a strong commitment to best-in-class corporate governance. I think all the shareholders and analysts would be aware of the change of board that occurred at the AGM last year and some of the desires of shareholders to see change. And I guess, my appointment is a step in that process. I've got a 20-plus year history of mining industry and certainly, for the last 10 years, of investing my own money. And hence, my strong focus on shareholder returns because I'm often a large shareholder in businesses.

We have a Board of Director now -- of Directors now that have, I think, have got a very broad range of experience, 6 independent directors. And I think between all of the directors, we bring to the company a very good range of expertise, and I think shareholders can feel comfortable that we have the right team in place.

Accountability is another core aspect for this so we have rearranged the internal reporting system to sort of tie responsibilities to relevant business functions. It basically means now that I know where to go when I want to find something out, and that we can task individuals and empower individuals with actually driving better outcomes for the company and the shareholders.

As I've said, the management compensation, we're now tying it to total shareholder return and returns on capital. And the compensation structure that's now flowing down through the organization will align the performance with the achievement of the desired outcomes. And the focus going forward is on driving a return on capital and try to align management's interest with shareholder value. That brings us to the 2014 guidance, the full-year guidance.

We've also given in this table, the 2013 actual mine production, which we announced this morning, which came in ahead of our revised guidance. And we've given some ranges for the cash costs and overhead capital expenditures for 2013. And for 2014, we're guiding at this point to mine production of between 515,000 and 530,000 ounces of palladium and platinum.

Total costs, cash costs for that of between $550 and $600 an ounce. The corporate overhead between $40 million and $50 million, which sort of equates to $75 to $97 an ounce, and capital expenditures of $165 million to $175 million for the year.

We do note at the bottom of that slide that the management reviews that guidance on a quarterly basis to basically reset based on what we know at each quarter. And I will note that last year, our production guidance was up around 2 to 3x and we still managed to beat that. The 2014 guidance that we're providing here is before we make any of the changes on a go forward basis. And so there is a body of work which is underway now.

I've been in the role for 6 weeks. There's quite a bit of work happening, quite a few changes underway. I think the market can expect to hear more on our guidance as we go forward. And I think that we've had a very strong finish to the 2013 year. 2014 has started off on a similarly strong trend and so I'm very, very comfortable with the guidance that we put out here. And as some of this work that's underway is completed, we'll be able to come back to the market and provide updates. And that's all I have for the presentation. Greg, unless you have -- do you have any other comments?

Gregory A. Wing

No. Again, I'd just reiterate that we -- it feels like the company has good momentum at this point. The performance in the fourth quarter came in very strong. And we're -- again, the markets are looking up a little bit as we come into the beginning of 2014. So again, while it's very early, we're anticipating a good year this year as well.

Michael J. McMullen

And we'd now like to open the floor for any questions.

Question-and-Answer Session

Operator

[Operator Instructions] And the first question in the queue comes from David Gagliano with Barclays.

David Gagliano - Barclays Capital, Research Division

First of all, thank you for laying up the 2014 plans and the change in strategy very clearly. I do have a very few questions on each of the buckets. First on the -- in no particular order, on the Marathon project, you mentioned best case scenario, commencing construction in the medium term. What do you mean by medium term, i.e. in terms of what year in a best case scenario should we expect the construction of Marathon?

Michael J. McMullen

Well, it's a good question, but it's subject to a couple of things, one of which is permitting, which is a fairly long and not necessarily easily defined process. And the other one is obviously, we have a joint venture partner and so we'd need to go through a process with them. But I think the best I could say is that it's unlikely that anything would happen on that within the next 3 years.

David Gagliano - Barclays Capital, Research Division

Okay, that's helpful. And then at the Montana operations, obviously, there's been underutilized mill capacity there for a long time. And it makes sense to try and ramp it up. My understanding is, though, that the last time there was an attempt to ramp up the utilization rates at the mills, it did create some issues throughout the mine. So I'm curious what steps are being taken to avoid some of the pitfalls that happened the last time those utilizations were ramped aggressively.

Gregory A. Wing

Well, I think initially, we're not looking at an aggressive ramp-up. But since the last time, particularly East Boulder was sort of running at -- or trying to run at a higher rate, the developed state of the mines has advanced quite significantly. And so the CapEx spend over the last 2 years, for instance, a significant amount of that has been involved in advancing and maintaining the developed state of the mine. So mine management would probably be able to give you a better answer, but my understanding is that the developed state of the mine is probably the best it's ever been.

Gregory A. Wing

The manpower, as you mentioned, is in very good shape as well, yes, which was always the constraint in the past. And I think the other point is that while we want to fill these up, again, we had an emphasis on quality ounces, which means that we're not going to lose track of margins in the process of doing that. So it's a bit of an interactive element, but as we ramp things up, we'll be very cautious of logistics and what's effective in terms of controlling costs at the same time.

Michael J. McMullen

And for East Boulder, particularly again, Graham Creek, the development project that's been underway for some time there, that's pretty well, by the middle or the late end of this year, it's ready to go. So all of a sudden, we've got a significant new area that's been opened up where we can source production from.

David Gagliano - Barclays Capital, Research Division

Okay. So just -- are these -- I guess the targeted increases in utilization rates more tied to Graham Creek and Blitz or towards expansion that we don't already know about at the existing workings?

Michael J. McMullen

A little bit of both, actually.

David Gagliano - Barclays Capital, Research Division

A bit of both?

Michael J. McMullen

And I think also there's a bit of -- there's some optimization work that's underway now where we think we can squeeze a bit more out without too much additional capital. But, yes, there are 2 -- there are a couple of large development projects that have been underway for some time that will start to make their presence felt over the next, well, from starting in about 6 months, 8 months through the next couple of years.

David Gagliano - Barclays Capital, Research Division

Okay. And then just my last question, Recycling side. Obviously, Recycling volumes are always impressive, but the profit contribution is typically pretty small. In my understanding, it's a pretty low margin business. Is there a reason for us to expect the margins to improve in the Recycling business moving forward? And if so, how -- what's the path towards getting there?

Michael J. McMullen

Well, actually, the more you fill it up, the more the margin grows. And on just looking for the number off the top of my head, we did have a bit of a one-off advantage in the previous quarter, well, the quarter before, but for the 9 months, I think that Recycling business made around about $30 million.

Gregory A. Wing

Yes.

Michael J. McMullen

So actually, it's not -- for a business that no one sort of pays much attention to, to make $30 million in 9 months is not a bad return. So the more we can fill that facility up, the higher the margin gets because you've got a large fixed cost component. And so, look, there is quite a bit of potential there to make significant extra money on that business.

David Gagliano - Barclays Capital, Research Division

And so just to follow-up on that, do you think that $10 million per quarter run rate is sustainable moving forward or I thought there was a little bit of some bricks falling through the last quarter that were not necessarily sustainable?

Michael J. McMullen

Yes, well, there was. And it will be a little bit lower than that. But I think as a business to make $20 million a year or something like, maybe a little bit more, it's not a bad business.

Operator

Our next question in queue will come from John Bridges with JPMorgan.

John D. Bridges - JP Morgan Chase & Co, Research Division

I wonder if we can get the more detailed amounts. It's difficult to value because we still don't know how much palladium there actually is in this thing. I know you're still working on the feasibility study, but when are we going to learn that number so we can actually value it?

Michael J. McMullen

Well, look, I think the study is sort of ongoing and one of the issues we have obviously is that under SEC rules, we can't actually report a mineral resource. So that sort of makes it somewhat difficult to get it out there without having the formal reserve. The previous information that's been put out has been that there has -- that there've been a sort of material reduction in grade from what had been assumed. I think that we would like to get to a position where within the next 6 months, we can get something out that people can put a valuation on. And then they can -- you can put a value around it at that point, I think.

John D. Bridges - JP Morgan Chase & Co, Research Division

Okay. So you can't just give us the percentage difference between what was previously published and what you found to be the case?

Michael J. McMullen

I don't believe we can under SEC guidance rules.

John D. Bridges - JP Morgan Chase & Co, Research Division

Okay. Hemlo -- or Barrick operates the Hemlo mine, quite close to Marathon. And I seem to remember, there was some interest when Hemlo was looking as it was going to close a couple of years ago, that there's some pressure from the town to actually build Marathon -- your Marathon mine quicker. Are you talking to the locals there, given the likely pullback in the life of Hemlo? Is that part of the calculation? Are you being encouraged by the Canadians to build the thing faster?

Michael J. McMullen

I think in terms of the local populace, the answer would be yes. But that's not necessarily how the permitting process works, is probably the best way to put it.

John D. Bridges - JP Morgan Chase & Co, Research Division

Okay. And then I was a bit confused by your answer, your last answer to David on the margins because the overhead for the Recycling is the overage of the company, which is something which is paid for already. So I'm a bit confused as to how the margins are going to increase.

Michael J. McMullen

Well, you had fixed cost out of the facility. And the more you put through it, the higher the margin you've got.

John D. Bridges - JP Morgan Chase & Co, Research Division

Okay. And you already have quite a significant market share within the U.S. So how much more do you think you can get? And our experience with Stillwater is, this is pretty volatile business as well. So what's your vision for adding these extra recycle books [ph] ?

Michael J. McMullen

Well, I think, one, we don't have an -- well, we have our largest market share in North America, but not owed -- I think there's potential to grow it. But importantly, we collect not only from North America. And there are some markets that we're collecting from outside North America where we actually are a very, very small part of the recycle feed business. And so it's those areas where we've identified that we have potential to grow the business.

Operator

[Operator Instructions] And next in queue is Sam Dubinsky with Wells Fargo.

Sam Dubinsky - Wells Fargo Securities, LLC, Research Division

What do you think is a good level of cash to have on the balance sheet going forward? And is there any potential for share buybacks or maybe restructuring that dilutive convert? And I have a follow-up question.

Michael J. McMullen

Okay. In terms of giving you a hard number of cash that we should have on the balance sheet, I don't think that it would be appropriate for me to acquire a number at this point. And obviously, it would make to be a net cash number. But, yes, I think when I talked about focus on shareholder returns and returning something to shareholder -- shareholders, clearly, many shareholders have expressed a desire to see a return and criticism of the company that they have not done so over the years.

So my goal -- let's be clear here, my goal is to return something to shareholders over the not too distant term and that we are examining what form that may or may not take. But it would be somewhat early for me to, at this stage, commit to anything given that I've been in the role for 6 weeks. But our aim as a company is really to provide a return for shareholders. And that can cover a range of options, including a buyback, as you suggested, or a dividend or something similar. But I can't give you a definitive answer at this stage as to what the plan is. But, yes, that's certainly the way that we will go.

Sam Dubinsky - Wells Fargo Securities, LLC, Research Division

Okay, great. And then on your $165 million to $175 million in CapEx guidance, how much of that is maintenance? And then also, what's your tax rate expectations for next year for '14?

Gregory A. Wing

Okay. I actually took a look at that earlier today in terms of the guidance that we're giving. It looks like the sustaining portion of that this year, which actually includes lower Far West and some other development that may or may not be regarded as sustaining in the true sense at NI, but we've got about $130 million of that, that's sustaining and about $42 million that would be assigned to project capital, if you will, with the bulk of that being Blitz and the second of that being sort of the position of Marathon. Graham Creek is virtually finished, so not too much money left to spend there.

Sam Dubinsky - Wells Fargo Securities, LLC, Research Division

Okay. And tax rate?

Gregory A. Wing

Tax rate, I think in the U.S., of course, we're subject to AMT. So that's a 20% marginal rate, if you will, more or less. And then worldwide, we're up probably in the 40-plus percent range, around 40%, I think. That may come down a little bit depending on the amount of activity we have in the foreign operations. But at this point, that's the kind of rate we're looking at.

Sam Dubinsky - Wells Fargo Securities, LLC, Research Division

Okay. Then my last question is just on geology and whatnot. Obviously, you're timing up operations, but you're output is higher in '14 versus '13, you're cutting spending in 8 [ph]. I believe you said that number is somewhat conservative. Is this an issue with just the geology of the mine and it's sort of more of a one-year phenomena or is this, going forward, we should expect at least the 515,000 to sort of 530,000 range in terms of ounces of output?

Michael J. McMullen

I think you can expect that going forward. I don't think we've had particularly favorable geology that's given us a wing. The only thing I would say is that because we're not chasing ounces for chasing ounces' sake, if we can identify opportunities to perhaps have lower production but at significantly higher margin, that may be something we would consider.

Operator

Our next question in queue will come from John Tumazos with John Tumazos Very Independent Research.

John Charles Tumazos - John Tumazos Very Independent Research, LLC

My question is similar to Sam's. You have $464 million in cash. If you don't spend the money on the Marathon project, should we expect you to use the money to repay debt, acquire some other project or distribute it to shareholders? And I think that's a fair -- an entirely reasonable question.

Michael J. McMullen

And my answer will be the same as what it was previously, which is our goal is to provide a return to shareholders. And so we are examining forms of capital management. I think that it's unlikely, although, you can never say never, but it's unlikely we would be using it to acquire something, unless a very good opportunity came up. And so I think the preference for the board is to ensure that we maintain an appropriate level of cash -- net cash on the balance sheet. And excess cash is available for redistribution in some form or another to shareholders.

Operator

Our next question in queue will come from Lila Murphy with Federated.

Lila Murphy

I have a few questions for you. What sort of throughput and grade assumptions underlie your 2014 production estimate?

Michael J. McMullen

I will need to pull some data out, but it's not really much different to where we are now, which is about 2,300 tons per day from the NI mine and approximately, 1,300-ton per day through the East Boulder Mine. Grade, off the top of my head, I can't recall, but it's -- the recoveries at each might are approximately 89% and 90% for the other one. So you could net calculate that.

Gregory A. Wing

Yes, I think at Stillwater, it's around 0.55 and at East Boulder, it's probably just south of 0.4, so say, 0.38.

Michael J. McMullen

Yes, that's about it. And all sure [ph] tons.

Gregory A. Wing

But that's ounces per ton, which you can convert to grams per...

Lila Murphy

Got it, got it, got it. And then will you be offering more detail in the future regarding mine site operating cost, perhaps a future 12-month look at mine plan and help the Street a little bit more with this guidance and a little bit more transparency as it relates to the actual mining operation?

Gregory A. Wing

Sure. Within the confines of SEC reporting requirements, yes. I don't think we've ever taken the view -- if you look at our 10-K, it's pretty thick. I don't think we've ever taken the view that we have secret information that we don't want to share. To some extent, it's a question of people letting us know what they like to see and we're happy to be responsive to that, obviously, on a broad-based disclosure basis then.

Michael J. McMullen

It's something like dollars per ton mining cost, dollars per ton sustaining CapEx, dollars per ton process cost, dollars per ton G&A, sort of basis, is that right?

Lila Murphy

Exactly, yes.

Michael J. McMullen

Yes.

Lila Murphy

Yes. And then I'm sorry to talk over you, but in your discussion on capital allocation, you talked a little bit about high IRR projects. And maybe go into a little bit of detail of what you think an appropriate hurdle rate is in the mining business. I know many different managements have vastly different ideas of what is appropriate in mining, and I would love to hear a bit more of your thoughts about that.

Michael J. McMullen

Sure. Firstly, I don't actually use IRR that much. I sort of prefer to have a look at net present value versus CapEx, which is a good risk/reward-type tool. And so we don't have a hard and fast rule here as a corporation. I have a rule which sort of I like to see the net present value after tax with reasonable metal prices to be at least 25% and preferably 50% of the capital cost. And that, when you work that through a project, that typically tells you whether the project is going to provide an adequate return. And then we also look at things like -- I've introduced a ranking system here for projects where we score projects on that and strategic fit, so you can see whether something fits us strategically by commodity, by country or political risk profile, and also by our ability to execute, is the other thing that we look at.

Lila Murphy

Okay. And if you don't mind one more question, give me a bit -- regarding your thoughts on jurisdictions, and I know that you've sort of hunkered down and focused a bit more on core operations, but maybe say a few words about jurisdictions and where you like to do business and sort of what areas of the world are sort of deal breakers for you?

Michael J. McMullen

Well, I think after I joined the company, I spoke to quite a few shareholders, our shareholders, and I think the message came back quite loud and clear that for the most part, those people that invested in this company for PGM exposure in low political risk jurisdictions, i.e. Montana. And so for me, sort of, mining-friendly states in the U.S., like such as Nevada or Montana or Utah, they tick the box.

Canada, obviously, ticks the box, i.e. Marathon is in the right jurisdiction for us. Clearly, Argentina is probably not the style and the jurisdiction that you'd want to invest large amounts of capital in at this point in time. And so I think for us, we will really restrict our mandate to those such [ph] styles and places, so obviously, Australia. If you have a PGM industry there, you probably go and have to look at that. But that's really where we are going to go. I think the chance of us stepping into an exotic jurisdiction, no matter how good the project looks, is pretty slim.

Gregory A. Wing

And of course, it goes without saying, if you look for PGM opportunities in the world, there aren't that many. So the number of jurisdictions that realistically are on the table are it's pretty much North America, I think.

Michael J. McMullen

Yes.

Operator

Our next question in queue will come from Andy Shabick [ph], a private investor.

Unknown Attendee

Just a couple of quick ones. Greg, have you set a date for when you will be releasing fourth quarter and full year results?

Gregory A. Wing

We haven't said a firm date yet. It probably will be, let's say, late in the process. So it'll be towards the end of February or early March.

Unknown Attendee

Okay. And secondly, I'm wondering if you can tell me, do you calculate reserves based on the 3-year average price for palladium and platinum? And given the fact that prices have been depressed in the last couple of years, how might that affect your reserve calculations going forward?

Gregory A. Wing

Well, the short -- the answer to the first part is, yes, we do use the trailing 12-quarter or 3-year price for ore reserves. The volatility of the commodities is such that to use just the spot price would kind of jerk things around a little bit too much, I think. So we do use a 3-year trailing average. And what was the second half of the question, sorry?

Unknown Attendee

Whether or not the depressed level of palladium and platinum prices in the last 2 years is going to affect any future update on your reserve calculation.

Gregory A. Wing

To the best of my knowledge, and again, it's a fairly elaborate process to go through all of that, but to the best of my knowledge, if prices stay at the levels they are now, there wouldn't be any impact on our ore reserves in the immediate future anyway.

Operator

At this time, I'm showing no additional questions in queue. Please continue.

Michael J. McMullen

Well, thanks very much, everyone, for your time. And I look forward to future conference calls and question-and-answer sessions. And it's an exciting time for the company and we look forward to updating you on our progress as we go forward. Thank you.

Operator

Thank you. And, ladies and gentlemen, this conference call will be available for replay after 4:30 p.m. Mountain Time today, running through January 28 at midnight. You may access the AT&T executive playback service at any time by dialing (800) 475-6701 using the access code of 316417. International parties may dial (320) 365-3844. That does conclude your conference call for today. We do thank you for your participation and for using AT&T executive teleconference. You may now disconnect.

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