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Primero Mining (NYSE:PPP)

Q4 2013 Earnings Call

February 13, 2014 10:00 am ET

Executives

Joseph Francis Conway - Chief Executive Officer, President, Director, Member of Disclosure Committee and Member of Health, Safety & Environmental Committee

David C. Blaiklock - Chief Financial Officer and Chairman of Disclosure Committee

Renaud Adams - Chief Operating Officer

Analysts

Jeff Killeen - CIBC World Markets Inc., Research Division

Michael J. Gray - Macquarie Research

Dan Rollins - RBC Capital Markets, LLC, Research Division

Operator

Hello, and welcome to the Primero Year End and Financial Results Webcast and Conference Call. We have just a few announcements before we begin. [Operator Instructions] And I will now turn the call over to Joseph Conway, President and CEO of Primero. Please go ahead, Joseph.

Joseph Francis Conway

Thank you, operator, and good morning, everyone, and welcome to our fourth quarter and year end results conference call. Whether it's a quarter or the year itself, I think we are very pleased with our results from -- in the terms of our operating results, particularly, and also our capital programs. And really, I think, at this time, it's very appropriate to acknowledge the people who are responsible for that. And that's certainly the employees at San Dimas, who have been delivering on their success in 2013 and, in fact, have been doing that since we acquired this asset back in 2010. So I think I really want to make sure that those folks rightfully recognize them by shareholders and investors, in general. Looking at the conference itself, I will lead the call, and -- but my colleagues, Renaud Adams and David Blaiklock, will be here in the room, as well as with the other parts of the management team. And we'd be pleased to take your questions at the end of the call itself.

On a high level, let's look at -- we had a strong fourth quarter and, importantly, a record 2013. Our production for the year exceeded guidance, and our cost control, we've, in fact, been able to reduce our cash cost per ounce each year for the last 3 years. And that's certainly within the context of this industry, a highlight I think worth noting.

In terms of our earnings and cash flow, we are essentially at expectations or above, on both. I will note that we had a significant noncash deferred tax expense of $36 million and that will, as you'll see other producers in the country, will have significant numbers as well relative to their financial position. Again, this is -- it is something that is noncash. I think it's important to note that. And it will be drawn down over the life of mine, if you like.

Our balance sheet still remains strong, at over $100 million. And as you go through this presentation, the exploration success, whether it's at San Dimas, at CDG -- Cerro Del Gallo, or Ventanas, we're very pleased with where that's come from. In terms of our capital programs, we're on time and on budget and, in fact, exceeding both of those during this year as well. And certainly last, but not least, is the announcement in mid-December of the business combination with ourselves and Brigus. That is expected to -- the shareholder vote will be on March -- sorry, February 27, and the closing around March 5. So we're all very excited about what that's going to do for the company, and I think that can be said on both sides of the equation.

Looking at our operating results, really, let's talk about the quarter for the moment. You'll note Q3, on a tonnes mill throughput, about 1,974 versus fourth quarter of last year, 2,066. I think it's important to note here, though, as you -- as we go into the presentation a little earlier, we did have a plant shutdown. So in actuality for the quarter, our mill throughput was over -- actually about 2,200 tonnes a day, which is at or exceeds mill capacity. So we're quite pleased with that.

Our production on a gold basis, on a quarter-over-quarter basis, certainly much better than from Q4 2012 to 2013. However, it is a little below where we were on a rolling basis quarter-over-quarter for the year of '13. But again, because of that shutdown, which is really built to accelerate the time line on our 2,500 tonne a day expansion.

So let's go back to the year. Basically, that's really been the story here of this company, is really -- is throughput. If we go back in 2011, we did about 1,860 tonnes a day; 2012, 1,976; and this year, overall, a little over 2,100. So that has been an important part of it. So -- and we look at our production overall from year-over-year basis, up 29%. And I think it's also important, again, to look back a little further and look at 2011 when we were up almost over 40%. So that mill throughput has been continued to be the story for San Dimas' success, and it will continue this year into 2014 as we go to the 2,500 tonne a day scenario.

In terms of our grade, you'll see about a 20% increase in grade on a year-over-year basis from 3.90 -- 3.9 to 4.67. Again, a lot of -- certainly, some of that or component of that is some pillar mining but, more importantly, is dilution control. And I think, we've done an admirable job on that front over the last several years, in fact, particularly, since we started our productivity initiative in 2012.

Sustaining costs are down to about a little over -- just under -- $1,100. And again, you will note the sustaining costs in the fourth quarter were a little higher than probably expected by some. But certainly, that is a timing issue related to, for example, our restock pile facility that we've been building, was accelerated in terms of it's timetable, which adds into your sustaining costs on a quarterly basis. But looking at a yearly basis, we're quite happy with where we are.

Looking at our financial results, just looking at the revenue line, I think it's important to note that, from 2012 to 2013, the commodity -- our gold price was down 16%. And when we look at our revenue, we're at $200 million versus $182 million. Again, what is that a result of? That's a result of production. As we noted earlier, about 30% -- 29% increase in production.

Our operating expenses for the year were roughly $88 million versus $76 million in 2012. But when you combine all of that with our revenue plus the throughput side of the business, the earnings from operations were only down slightly, despite a significant drop in the commodity price. If you look at our earnings per share, again, effective by the onetime noncash deferred tax item, but looking at our adjusted earning EPS of $0.36, essentially in line with where the analyst expectation is. And if you look at our cash flow per share of $0.67, essentially in line as well.

Looking forward into 2014. Really, we're looking at our production, going from 143,000 ounces in 2013 to 155,000 to 165,000. And that's largely driven by, obviously, grade control but, importantly, obviously, this is a 2,500-tonne expansion that we're going forward with.

In terms of our cost structure, on a sustaining basis, we see it dropping to around $1,000 an ounce; and on a cash cost basis, we're targeting $575 to $600 for San Dimas alone.

Looking at our capital expenditure budget, slightly less than in 2014; and on our exploration budget, slightly higher. So again, all in balance from where we see ourselves going forward.

Looking at our financial position, we ended the year with $111 million in cash. On a combined basis, I wanted to note that assuming we close with the Brigus transaction in the next several -- couple of weeks, on a combined basis a consensus price is, on an after tax number, we should be generating $150 million in cash flow a year. We have a debt position of $27 million. And that is essentially due, under the terms of the current note, at or before the end of 2015. But at the same time, it's important to note for liquidity purposes, we are looking at a $75 million line of credit, which should be in place before the end of the third -- first quarter. And that, obviously, provides us a cushion for whether further expansion of San Dimas, repayment of the Brigus debt, and development of Cerro del Gallo as well.

Looking where we're focused on, really, if we look at our balance sheet, we're -- we feel we're in good shape for that going forward. In terms of measured growth, what we see here is the ability, when we say measured, is the ability to execute on a timely basis and on efficient basis. And as an example of that, there's optimization and expansion opportunities or ideas that we're looking at, whether it's at San Dimas, Black Fox or Cerro del Gallo. But looking at San Dimas, to start with, really, the 2,500 tonne a day expansion is complete and on time and essentially on budget. We are looking at a 3,000 tonne a day scenario currently. And then, going forward from there.

Disciplined cost management, whether that's operating cost or capital cost, we're very much focused on getting a higher return on our capital and keeping our cost structure below the industry average. And I think, with the combination with ourselves and Brigus, that will continue.

Low-risk jurisdictions. Ontario and Mexico were certainly on the low-risk side but, importantly, all of our assets are generally within good infrastructure for their future development.

And then, last but not least, is certainly responsible mining. We've won a number of awards over 2013 and some -- more recently last quarter, which really, for us, demonstrates our commitment to the community and the environment. And that gives us our social license to build projects elsewhere in the world.

Turning on to the Brigus transaction. Just the quick highlights because, as most people are aware, it's going to be closing shortly. Basically, it does create a new Americas-focused mid-tier player, with assets -- operating assets in low-risk jurisdictions. In terms of the scale of the new company, we'll be producing 240,000 to 260,000 ounces this year, and then growing rapidly over the next 2 years or so, to over 400,000 or around 400,000 ounces. And importantly, at below-industry average cost structure.

What I can say is that, whether it's at Black Fox, Grey Fox, Cerro del Gallo or San Dimas, all of these assets have significant exploration upside, and I hope to give you a sense of that today. And then certainly, the other attribute is the financial -- the liquidity in the balance sheet of this new company going forward, which we see is enough to provide us to go -- to build what we have in front of us. And again, generating a consensus price on an after tax basis, almost $0.75 billion over the next 5 years.

Looking at our capital structure, you will note that, on a combined basis, the shares outstanding would be roughly $156 million. And using a share price of a couple of days ago, that would imply a market valuation of a little over $1 billion. The major shareholder at the time of closing will be Goldcorp, and they will be at or below 20%.

In terms of our financial position, on a net basis, we'll be a little over $20 million. But again, still generating $150 million worth of cash flow, and this payable does not incorporate the liquidity of a $75 million line of credit. So we feel that we're in a pretty good shape on a capital structure basis going forward.

Looking at the combined set of assets, you've got 2 mines -- 2 underground operations. And Black Fox, actually, has an open pit component as well. You've got the feasibility level of the -- feasibility study stage project, Cerro del Gallo. You've got an advanced exploration project in Grey Fox. And then, a very early stage, but potentially interesting project in the Ventanas operation. And again, so what we see here is we -- at this point, we're starting to develop a pipeline in terms of assets, and that's an important part of any company's growth.

Looking at the pipeline in detail. You've got San Dimas and Black Fox in production. The construction project at San Dimas is largely done, at 2,500 tonne a day scenario. But when we start to look at Cerro del Gallo and Grey Fox, for example, where we're really focusing on there is new styles or new forms of mineralization. Our new vein structures, for example, at Grey Fox, and new styles of mineralization, particularly at Cerro del Gallo, in terms of -- on top of the intrusive or on a local basis, other forms of mineralization.

Looking at the San Dimas expansion, the 3,000 tonne a day, ironically -- or interestingly, I should say, I was down at the site, essentially cutting the ribbon, if you'd like, at the 2,500 tonne a day expansion. And the next day, Louis Toner, our VP Project Development, was holding a workshop on the 3,000 tonne a day scenario. So where we're at here is really looking at the mid-year, we're going to be in a situation where we're going to be making a decision or, assuming on positive results, of course, at Cerro del Gallo, and the expansion at San Dimas to 3,000 tonnes a day. But I'm quite comfortable over that same period of time, we're going to have some very interesting results to come out of Grey Fox, as well.

Looking at the broader exploration point of view, again, Ventanas is certainly a project that we had not spent a lot of time on in the past, but is starting to deliver some interesting mineralization, early stages there, I would say. Black Fox, at depth, I think there's certainly been a reasonable demonstration that, that opportunity exists. And even in the larger Black Fox complex, we would say it's underexplored. And then similarly for San Dimas on a regional basis as well. And we'll touch on all that a little later on in the presentation.

From here, I'd like to give you a quick overview of Primero and the Brigus assets. And I'll start with Primero's as we stand today. The platform has certainly always been -- has been San Dimas and, again, our goal here has always been to get the mill up to capacity, and then expand that capacity. So we're at that Phase 1 expansion phase of the mill at this point. And as I mentioned a moment ago, we'll be looking at where we stand by mid-year on the 3,000 tonnes a day. And certainly, last but not the least, the Cerro del Gallo. Looking at San Dimas, very quickly, long history of reserve replacement. It has got a mill, currently up and running at 2,500 tonnes a day. The reserve, resource stable here, I would note, doesn't reflect the latest reserves and resources for 2013, and they should be released basically in the first week or so of March. When we look at a bit more on the exploration side of it, this year, we're going to spend almost $16 million, which will incorporate 60,000 meters of drilling, 35,000 meters of delineation and 25,000 of exploration. So it's a healthy budget, and we expect to get a lot of results from that.

The areas of focus are really in between Alexa and Victoria and the Aranza-Elia veins. And if you recall, if you've been following the company a little bit, those 2 vein structures of Victoria, Alexa, and Elia and Aranza, were discoveries in 2011 and 2012. And '13, we've expanded on that. Now we're starting to look at some known mineralization in between. And in addition to that, we're also looking up a little further north, what we call Luz y Reyes. So those are going to be important part of things that we think that we can add near-term ounces that could be into the mine fund in a fairly short order. And we also have a significant regional play. When I say regional, within 2 to 4 kilometers of the mill. So it's not that far out. But we've talked about it before, there are 120 known veins on this project, and only about 20 have actually done any serious work on them.

Moving to Cerro del Gallo. Really, what we see here is really a good solid project in an area with excellent infrastructure and a supportive community. And when we look at that in terms of what does that mean to us, it means, one, is stability and reduced risk. You're building -- assuming the economics work, you're building a project with good infrastructure, accessing people, and having the community support would be critical, and it's definitely an area of the world that has both of those features.

In terms of the construction decision for us, we're really looking at this though. As you -- we all know, the commodity price has been pretty volatile over the last 12 months or so. And what we want to see is a 15% IRR, or $1,100 after tax before we make that decision to go ahead. I will tell you, we are not there today, but we are working to do that. There's a number of things that we want to touch on, and I'll show in a moment, where we are.

Certainly, on the exploration and development side, is where we see -- where we could get ourselves across the line. Let's touch a little bit on exploration. We did announce some high-grade vein structures, and the drill results are on the slide that you see on Slide 19. We have an exploration program that's going to include about 10,000 meters of drilling, and we're also looking at mineralization outside the known development plan that we see today. And as I mentioned earlier, there is some opportunity. And we also see that on top of the intrusive, which has previously not been drilled. There is some evidence -- early evidence of mineralization there. So that could be important. So that's the exploration side. The development side, of course, is really around what can we do to reduce the CapEx or capital and, as well as, what we can do to reduce the operating cost? And then, last but not least, is what could we do to improve the metallurgy? So over the next 6 months, all 3 of those areas are going to be focused on.

Let's look at Brigus for a moment. Basically, Brigus is right in the middle of the Slide 20, and the Black Fox mill and Black Fox complex, which is the mining area. But you're on the Destor-Porcupine Fault which is, I think, in itself has produced over 70 million on the regional side -- 1 million ounces. On a regional basis, probably over 200 million. So you're definitely in a perspective mining from your jurisdiction. When we look at Black Fox, in particular, we're looking at a plant that has about 2,200 tonnes a day. And an open -- right now, there's an open pit component to the production and as well as an underground reserve -- underground reserves. Pit is about 3 years, maybe a bit more than that. And the underground has about 7. So our longer-term focus here, say, beyond the 3-year period is we need to fill all -- or substantially all of that mill. Fortunately, though, I think what we see from the near-term development at Black Fox and the exploration of Black Fox and Grey Fox, that should not be a significant issue for us.

In terms of the reserves and resources that are in that table, we want to point out but, again, like ourselves, these are from 2012 and we expect to have those out by the end of new reserves and resources for Black Fox by the end of March of this year.

What really excites us here about this project though as we talk about, is really the couple of things, just to touch on the exploration and depth potential here. If you look at this camp, there's a series of listed mines here. And the average depth of these mines are about 1,600 meters, and the shallowest is 900 meters. However, Black Fox development currently is only down 500 meters. So what is the opportunity there? Well, looking to Slide 23, really, a couple of things. And during the, I guess a little bit in the fourth quarter of last year, a couple of drill holes were put out that were about 300 meters below the infrastructure that currently sits at Black Fox. And those were 18 grams over 40 meters, and then another hole basically with 40 grams over 26 meters. And there are only 2 drill holes. I want to caution people there. But that is a pretty significant result, and I can assure you that sooner we close this transaction, we're going to be following up on that this year. But the other side of it, too, is just the near-term development. What we see is you'll note the green lines represent the existing development underground the headings now. And as you see there's sort of 2 sides of it, on the left- and right-hand side of the slide. But in between, basically, was some infill drilling. There's an opportunity that perhaps those 2 areas connect. And even that doesn't have to go down 300 meters from where those, really bonanza drill holes there. There certainly evidence of mineralization closer to the known infrastructure and we need to put the development headings and drill to see where we get to with that. So I think we're going to be -- we're pretty excited about what can happen here over the next 6 to 12 months.

Looking at Grey Fox, it is still an exploration project. But we have 3 rigs on site. What we see here, a couple of things is, looking at the metallurgy, for one, first side of it. Looking to see if we can improve that. But again, this is another one of these projects that has insufficient drilling. You see a picture, there's basically 3 known zones, when you look at the top photograph -- rear photograph. But there is another structure that was discovered and put out in the press releases in the fourth quarter as well. So lots of things to follow up on and hear. And again, we are going to put the resources to looking at that. And that, hopefully, to move this project to become our next pipeline project in the camp.

In terms of catalyst for the company, obviously, the critical step is really the -- is the vote, and 2 weeks from now. We will be putting our reserves and resources out. The -- as I say, the expansion to 2,500 is essentially complete. And that takes our production up to almost 160,000 ounces. And then, certainly, we're going to be looking at pushing hard to have Black Fox at 1,000 tonnes a day, and being -- getting ourself ready, if you like, to replace the lower-grade open pit ounces. And then, in Q3, it's really coming down to a decision point, if you like, on the 3,000 tonne a day situation at San Dimas, as well as the Cerro del Gallo project. And so, I think, there's lots of good news that's going to coming out about this company. And we are going to continue to move forward and try to grow our production organically.

So in summary, what we see here, if you're looking at -- particularly, what the combination is, I would think that Primero represents a reasonably compelling investment opportunity here. The biggest transaction transforms us into a -- from a single asset producer to a diversified mid-tier player with a portfolio or pipeline of projects. We also have a very strong balance sheet and, certainly, at $150 million plus of cash flow generation, what we are able to see that, we see -- with our liquidity, our cash and our cash flow, that we can build the assets that we have with no shareholder dilution going forward. So we're pretty pleased with that.

And with that, I thank you for your attention. And I open the line up for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question is from Jeff Killeen from CIBC.

Jeff Killeen - CIBC World Markets Inc., Research Division

Just wondering, the line of credit that you're looking to put together is $75 million. Do you expect to use all of that to cancel the Brigus debt that's outstanding, or do you think that there will be some of the current cash balance used towards that? How do you see things shaking out?

Joseph Francis Conway

Thanks for the question, Jeff. I think it could be a mix of both, right? I mean, if you look at it, that line of credit would essentially cancel the debt. So you could look at it that way. But we may just draw a portion of it down, if you like, and then do the rest from our financial resources. Because, as you know, we -- as I said, we generate $150 million of cash a year. So even after CapEx, we will be -- being aggressive with CapEx over the next 12 months, we're still going to be in good shape. So it's really -- we haven't [indiscernible] about it.

Jeff Killeen - CIBC World Markets Inc., Research Division

Okay. With respect to G&A in 2014, would we expect a similar level to what we've seen in Q4? Or will there be any material changes there?

Joseph Francis Conway

Might be a little down. I mean, obviously, it gets swung -- it's really about -- when you talk about G&A, is that the cash portion of G&A or is the stock-based comp which, obviously, because of volatility and price appreciates or depreciates depending. But on a cash basis, we don't see a significant change. I think what we see with Brigus, in particular, is very much a stand-alone operation. We will need to beef up certain aspects of our business in terms of our corporate side of it, but not significantly.

Jeff Killeen - CIBC World Markets Inc., Research Division

Okay, great. Just in regards to the reserve update that's coming in March. I've seen a lot of write-downs in the industry at this point in time. Do you expect to see, or should we expect to see anything of that nature either at San Dimas or Black Fox?

Joseph Francis Conway

No.

Jeff Killeen - CIBC World Markets Inc., Research Division

Okay, great. And then, maybe lastly, you had indicated at Black Fox there might be some potential for mineralization shallow or up in between the 2 main mining areas. Has Brigus done any or much drilling in that area? And if so, would you care to comment on it?

Joseph Francis Conway

Yes. I think there are some. I think there was -- a lot of it was released earlier. But it's really about -- what we see here really is, from a development point of view, is accelerating. And getting development so that you can drill from different points and have more flexibility in terms of your drill program, in general. Then there's -- when you look at that near, let's say, near infrastructure mineralization, I think that's really just a lack of drilling. And it's obviously going to be a priority for us right from the start.

Jeff Killeen - CIBC World Markets Inc., Research Division

Great. And one very quick question, lastly. There was some social security costs that came through in Q4. Do you expect that those have now been complete? Or will we see -- still see some of that effect in 2014?

Joseph Francis Conway

You're going to continue to see social security costs in general. I think what -- David, do you care to answer that question? A little bit...

David C. Blaiklock

Sure. In Q2, actually we recorded a big adjustment related to historical social security. So there is an adjustment of about $1.5 million went through operating costs, and about $5.5 million went through other expenses, the $5.5 million related to 2012 and earlier years. On an ongoing basis, we have about $2 million of social security costs related to San Dimas. And that's going to continue. But that's just routine ongoing social security cost.

Operator

[Operator Instructions] We do have a question from Michael Gray from Macquarie Capital.

Michael J. Gray - Macquarie Research

Yes. A few questions. First of all, on Cerro with about $14 million in the budget for this year to optimize, as you mentioned, and the decision looks like is in early Q3, would it be fair to say it'd be fairly -- if you, guys, are in a positive construction decision that you'll be fairly slow in terms of the capital expenditures throughout the year? Or can you offer a bit of guidance on that?

Joseph Francis Conway

Conceptually, Michael, thanks for the question. We'd probably be a bit slow in the first year. But, David, you want to...

David C. Blaiklock

No. I mean, exactly -- I mean, by the time we made, let's say, we made a decision positive that we have to initiate the detail, engineering will take a portion of it. And completing some aspects of the -- domain of the capital will come in 2015.

Michael J. Gray - Macquarie Research

Okay, now, that's great. And on the Brigus acquisition, can you comment on any tax pools or shields that might come with that?

Joseph Francis Conway

I think the number is roughly $300 million. David, is that the exact or roughly just close to that?

David C. Blaiklock

We have -- there are significant tax pools available. It's -- if you include the development expenditures and tax pools, then, yes, you get up to a number that's close to that. So we don't anticipate we'll be taxable at Brigus for a while.

Michael J. Gray - Macquarie Research

Okay, great. And for San Dimas, ongoing drill results, Joe, you had mentioned in the list of catalysts but, presumably, we're still going to see every quarter lots of results from the -- on the new vein discoveries and that?

Joseph Francis Conway

Yes, yes.

Operator

Our next question is from Dan Rollins from RBC Capital Markets.

Dan Rollins - RBC Capital Markets, LLC, Research Division

Yes. Just a couple of questions. One more housekeeping, just on taxes at Black Fox. You mentioned that you want to be cash taxable for a while. I was just wondering if you might be able to clarify that, and maybe in terms of potential number of years within the current gold price environment? And second, if you can confirm that the Ontario mining duty is also able to be sheltered under the losses acquired through the acquisition of Brigus?

Joseph Francis Conway

That's a good question, Dan. I'll let David answer that one again.

David C. Blaiklock

Well, we -- our current plan that we presented to our board is just a projection over the next 5 years. We haven't got into a lot of detail and done much optimization ourselves. But based on what we are seeing over the next 5 years, we're not anticipating that we will be cash taxable in -- at Brigus over that period. Regarding the Ontario taxes, I'll have to get back to you on that. I'm not sure what the answer to that is as of yet.

Dan Rollins - RBC Capital Markets, LLC, Research Division

Okay, great. That'd be great. And then, Joe, maybe in the past, with respect to the 3,000 tonne a day expansion, you really stated that it's been sort of contingent on, one, getting the exploration success and seeing the results of the last 2 years. And given the potential you outlined today, it looks like that is moving ahead well. Is it now just really can the underground support 3,000 tonne a day? And where do you stand? Are you close to getting to that level right now?

Joseph Francis Conway

The answer is -- can we bring that up then? Yes. I mean, it is coming down to, can we run 3,000 tonne a day for not the next 2 years, but the next 5 years? Interesting to note -- I mean, we been running 3,000 tonnes a day in the mine now. And as things are improving there. We're obviously building up a bit of a stockpile and advancing the mill. But -- yes, that's really what it comes down to is. I think we've demonstrated we can do it. It's just a question of being able to sustain it. And there's no question. I would think that the capital, generically, would be less than 2-year payback, probably, even been better than that. But again, you want to be able to ensure yourself that you can -- once you've made that expansion, you could keep it going for not 2 or 3 years, but 5 years or more. So that's really...

Dan Rollins - RBC Capital Markets, LLC, Research Division

And then -- great, and then, that's perfect. And then, Renaud, maybe if you could just comment, this mine, in the last 3 or 4 years ago, it had a dilution. It was a bit of a challenge, and since the new team's come in, you guys have really addressed that. Are you still seeing quarter-over-quarter improvements in dilution on gold? And then, maybe a bigger question is, on the silver, are you still seeing better in dilution there?

Renaud Adams

Well, first of all, I would say that the ratio of silver, gold in terms of dilution, as you said it, it's the same because one follows the other. Absolutely, follows. It's the perfect correlations. But on that, I would say that, the main 2 tickets there were to, first of all, to create a black model and have a much better prediction and, therefore, better execution. And the introduction of the long haul to eliminate the use of the jumbo in some narrower area. And that makes a bit. So those 2 had been pretty much implemented. What you will see moving forward is the long haul contribution to increase from the current, let's say, 20%, 22%, eventually 30%, and our mining study is showing up to perhaps 40%. So that would keep reducing the use of the jumbo in some areas. So yes you can keep thinking that the overall maybe we can gain another, maybe 5%, 7% overall. And dilutions over the next maybe 2 years of implementations. But I would say in the next quarter, don't necessarily expect -- we should not expect, like, significant increase every quarter. But yes, we will keep slowly -- improving slowly over the next 3.5 or something.

Operator

We have no further questions on the audio side. We'll turn it back to the webcast, if there are any online questions.

Unknown Executive

Yes. We have one question online, coming to us from Bob. It's a 2-part question. And he'd like to know, is the silver purchase agreement with Silver Wheaton for the life of San Dimas mine only? And the second part is, with the New Mexican tax, do we anticipate positive earnings in 2014?

Joseph Francis Conway

Thanks, Bob. I mean, on the first question, it is only on San Dimas. It doesn't affect Ventanas, et cetera. And the second part of the question was [indiscernible].

Unknown Executive

With the new Mexican tax, do we anticipate positive earnings in 2014?

Joseph Francis Conway

Yes.

David C. Blaiklock

Absolutely.

Joseph Francis Conway

Okay. That is all the questions. And I'd like to thank you, all, for your attention. We're again very pleased with the results that we've achieved. And I want to thank our employees for what the efforts they've put in here. And we look forward to showing you further progress in the first quarter of 2014. Thanks again.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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