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AuRico Gold Inc(NYSE:AUQ)

Q4 2013 Results Earnings Conference Call

March 04, 2014 / 8:30 A.M. E.T

Executives

Anne Day – VP, IR

Scott Perry – President & CEO

Robert Chausse – CFO

Peter MacPhail – EVP & COO

Analysts

Cosmos Chiu – CIBC World Markets - Analyst

Adam Melnyk – Desjardins Securities

Anita Soni – Credit Suisse

Dan Rollins – RBC Capital Markets

John Clintock – Pareto Securities

Operator

Good morning. My name is Denise and I will be your conference operator today. At this time I would like to welcome everyone to the AuRico Gold 2013 fourth-quarter and year-end results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

(Operator Instructions)

Thank you. Anne Day, VP Investor Relations, you may begin your conference.

Anne Day

Thank you operator and good morning everyone. Thanks for joining us today for the AuRico Gold fourth-quarter and year-end earnings results conference call and webcast. On the line today we have Scott Perry, President and CEO; Robert Chausse, our CFO; and Peter MacPhail, our Chief Operating Officer. They along with other members of the Senior Management team will be available during the Q&A period at the end of this call.

At the end of the presentation, the operator will provide instructions for those who wish to ask questions. Today's presentation, financial results, and press release are all available on our website at auricogold.com.

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

Scott Perry

Okay. Thank you, Anne, and good morning ladies and gentlemen. Thank you for joining us for our conference call.

If you are referencing the presentation that's available on the website, I am just starting off on Slide entitled Corporate Update, Slide 4. I guess slightly seen on our recent conference calls we have been highlighting the positive safety performance at both of our operations. I just want to highlight that both mine sites now achieved 1.5 million hours lost time incident free. Again at both sites very shortly here, will be at one entire calendar year lost time injury free.

We always advocate that geology aside, people are our most valuable asset, so in terms of our new safety program, Home Safe Every Day, making some very good safety performance here. And by and large, safety is always a leading indicator of the quality of an operation. So I want to give a shout out of congratulations to the teams at Young-Davidson, El Chanate, and we'll look forward to building on this strong result.

A few core results from an operational perspective was our sixth consecutive quarter of record Company-wide production growth. If we look at where we are at currently in Q1, we are very well positioned, subsequent Q1 we are subpar; the level will go to output in Q4 and will likely represent our seventh consecutive record quarter of gold production.

Concurrent with our financial results today, we also released our year-end reserves and resources. Probably the key thing to highlight is our gold price assumption put forward that we are being appropriately conservative. We're utilizing a gold price assumption of $1,250 in terms of preparing our reserve estimates. And I think it really does demonstrate that the Company continues to focus on high-quality, higher-margin ounces.

Management is very encouraged by the results that you see at Young-Davidson in terms of the underground operation, and notwithstanding the more than 10% decrease in gold price assumption, our reserves are consistent with last year's reported reserves. But in terms of quantum, and also in terms of grade, so I think it does highlight that it's a robust ore body, particularly so in the variable gold price climate that we are currently in.

We paid out our fourth-quarter dividend on January 29, and I think that now represents some $14 million of dividend distributions in the last 12 month period. So again very focused on shareholder value creation and shareholder friendly initiatives as we move forward. Do note that the dividend policy as we have been communicating ever since inception and from the last 12 months, 2014 will represent the calendar year whereby the dividend policy will now convert to a payout ratio of 20% on operating cash flow. From therein, the level of dividend distributions will naturally recalibrate to the inherent profitability within the business model.

The other thing that we mentioned in our Q4 results, recognizing that it has been a variable gold price environment, we've been focusing on all aspects of the business, as well as a number of cost containment initiatives that were implemented in Q3, Q4 of last year.

Probably particularly to note, down at El Chanate our Mexican operation we did compress or reduce the workforce quite significantly there. Mostly they're engaged in some heavy and favorable renegotiations with some of our key suppliers in terms of our contract pricing and what have you. I think we've really achieved some good unit pricing there that will reflect in our results moving forward.

Likewise at the corporate office, we have announced that there was a $0.30 reduction in our manning levels. This was unfortunate, just given the employee, what happened, and what have you, who're instrumental in contributing to the success of the organization moving forward. But with such success we really have streamlined the Company, and just given the prevailing gold price environment and et cetera, we thought it was time to compress the G&A bandwidth moving forward.

The other thing that we're flagging in our press release today is that the Company is looking to be opportunistic in terms of maintaining our strong liquidity position. We are looking to ensure that we've got strong liquidity for the next eight years moving forward, such that no matter what the gold price environment is that we've definitely got adequately funded business model moving forward.

We are currently assessing a number of shareholder friendly, non-dilutive debt financing options that will put us in really strong stead, and really safeguard the business model for the next eight years. And there will be more details to coming just shortly, and I think that also position us well from an optionality perspective just in terms of ensuring we have got that additional flexibility for future organic growth opportunities at Young-Davidson, particularly so from a midterm perspective.

With that, transitioning to the next slide on Slide 5, which is titled disciplined growth drives shareholder value. The shareholders and analysts who are very familiar with the Company would know that this is one of my favorite slides. We have always been advocating or messaging that this is an asset base that is going to lend itself well to our reliable, consistent, sustainable production moving forward.

I think that's represented here in this chart. We have now focused six consecutive quarters of Company-wide quarterly growth. You can see here we are providing a full look on quarter in terms of Q1 to 2014. So again, I think that really does attest to our confidence in the operating momentum that we saw at the end of last year. It really has carried over into this year. And we expect to be – we expect to continue this trend really for the remainder of this calendar year. But even on a year-over-year basis, for the next two, three years at a minimum. Again, being underpinned by the ramp-up at Young-Davidson.

Just transitioning to the next slide on Slide 6, entitled Young-Davidson updates. Q4 was a very favorable – it was a key quarter for the Company, just in terms of the evolution of Young-Davidson moving forward. I think a key thing to note was the inaugural quarter in terms of commercial production, the catalyst for that was the commissioning of the mid-shaft loading pocket and giving us the shaft hoisting capabilities. And therein, I guess the investment community and the capital markets got their initial line of sight on just how well things are progressing at Young-Davidson.

Some of the key highlights, in Q4 we averaged underground production of 2,600 tonnes per day. If you actually reference the months of November and December, we averaged around 3,000 tonnes per day. That was a very solid base versus the expectations of 2,000 tonnes per day. Coming down to 2014, we've upgraded our guidance and we are now committing to starting this calendar year at 2,500 tonnes per day, and will continue to increase that level of underground productivity exiting the year at 4,000 tonnes per day. So very good positioning from a productivity's perspective.

In terms of unit cost efficiencies, in Q4, and the months of November and December being the first initial months of commercial production, we came in at $39 per tonne of underground ore mined. Again, that was a very favorable outperformance versus expectations of $45 per tonne. As we come into this year, we are very fortunate to have completed the construction and commissioning on our paste backfill plant much earlier than anticipated, so we will be starting – sorry – in Q1 we have started incorporating paste backfill in our mining operation.

So as we have communicated previously in our guidance, you will see us this year commencing the year averaging around $45 per tonne mined, and that will continue to trend lower whereby we are guiding that we will exit the year averaging $40 per tonne. So it's very good positioning from that perspective.

And I guess we always speak with a high level of confidence in terms of our underground tonnage guidance. And what I would point to is we are ahead of ourselves. We really have outperformed our internal plan in terms of our underground mine development advance, if you look at the next eight years of underground mining it's 100%, the access.

And if you look at the actual calendar year 2014 in the mine plans for this calendar year, we came into this year with 75% of this year's mine plans already readily accessed. So that gives us the utmost flexibility just in terms of how we're sequencing and phasing our underground operations throughout this calendar year. So feeling very comfortable with the underground production tonnage requirement.

The mill facility – another thing that we have just quoted the first time in our press release, we are very pleased to see that we just recently received our regulatory permits, whereby we now have the optionality to increase our mill facility approval rates up to 10,000 tonnes per day. This is a key catalyst in terms of demonstrating optionality and potential near-term growth.

If you look at our guidance, we are still maintaining our current guidance that Young-Davidson will average between 7,000 and 7,500 tonnes per day in 2014. But we definitely now have a lot of optionality in terms of looking to increase the fruitful capacity above that level of guidance.

That does provide us a unique opportunity – those who are familiar with the Company would know that we do have around 3 million tonnes of historical open pit stockpile inventory; it's always going to be a long-term stockpile, but with the ability now to look at increasing our mill capacity, we have the ability to start treating some of that tonnage, which would be cash flow accretive. So it's something that we'll continue to evaluate as we move forward.

Just lastly, in terms of the lower mine development, in terms of the lower ore bodies, that's well on the way in terms of the next phase of shaft sinking, and this is the capital program that will be taking place over the next three to four years. And a key takeaway here is this program is going to give us access to the entire lower mine ore body, such that we will have 100% vertical access to an asset that's currently indicating a mine life of some 20 to 25 years, so really shaping up to be a key strategic asset for AuRico Gold moving forward.

With that, just transitioning to the next slide on Slide 7, that's entitled El Chanate exploration potential. I just want to reference that if you look at our guidance for 2014 and our exploration investments, the majority of that exploration budget is being ascribed to El Chanate. Probably the key asset where we are seeing upside and good prospectivity and good potential to hopefully increase the mine life over and above its current indicative reserve life, and I've got quite a detailed drilling program targeted for this year.

This slide here on Slide 7 just highlights the success of last year's program, and you can see we have delineated two new areas of mineralized interest to the Northwest, which is the top left of this diagram. And likewise we have delineated a near area of mineralized interest to the Southeast called Loma Prieta. So I think we are demonstrating that there is good continuity of mineralization outside of the existing open pit and along trends. On the back of that continuity, we've acquired quite a significant land package to the Northwest as well as to the Southeast. So I think we now have control of over some 15 to 24 kilometers of this potential strike length.

The other thing that our exploration geologist would want us to reference is top right on this diagram is Chanate Deeps, this is a new target that we've delineated last year some 100 to 150 meters below the existing floor of the pit. It's a unique style of mineralization. We've got approximately some 300 meters of strike length here at this higher grade material. You can see some of those drill intercepts – wide intercepts, 25 to 50 meters at grades in excess of 2 grams per tonne. And I categorize that as high grade because the current reserve grade at El Chanate is around 0.65.

So this is very interesting. We'll be really following up on that as part of this year's program that's already underway just to really try to get a better understanding of the structural controls and how we may be able to incorporate this in possible future mine plans moving forward. But I think it does speak well in terms of the possible potential and prospectivity here moving forward at El Chanate.

Just moving forward to the next slide on Slide 8, entitled reserve highlights, as I mentioned at the outset, we have reported our year-end reserves. Being repetitive, I definitely want to just reiterate that we have been conservative in terms of our gold price assumption. We're using $1,250 per ounce.

If you looked at the gold price assumption that we utilized in the prior calendar-year reserves, it was around $1,400 per ounce, so it's more than a 10% reduction in terms of dollar per ounce assumption. But notwithstanding particularly at our flagship out at Young-Davidson, we're still in a position where we are reporting the same quantum ore level of ounces, and at the same quality in terms of the existing reserve rates. So I think that's a key highlight. It really does prove and demonstrate the quality of our reserves at Young-Davidson and making for a good reserve base with low-cost, long life ounces moving forward.

So the second bullet point on a Company-wide perspective we've continued to have around 6.5 million gold ounces in proved and probable reserve category, and any depletion that you do see in our reserve is primarily related to the Young-Davidson open pit, which has about another two or three months remaining mine life, and then just also production depletion at the El Chanate operation.

I mentioned the Young-Davidson underground reserves as a key highlight, level of reserve inventory is consistent with the last year and the grade is consistent. Probably the other thing I'd highlight on the underground reserves is the significant conversion of underground reserve resources into M&R resources. A lot of this is on the back of a very successful integration program just in terms of our measured indicated resources, it has grown by some more than 75% relative to the prior year's resource inventories, so again making very good headway there.

El Chanate again as I mentioned, the decrease there down to around 1 million gold ounces in terms of proved and probable reserves category. The depletion there is largely attributable to production completion; one possible highlight is that there reserve grades at El Chanate have increased by 5%.

So with that, ladies and gentlemen, I am now going to pass the call over to Rob Chausse, our Executive Vice President and Chief Financial Officer, and Rob will just walk us through some of the financial highlights.

Robert Chausse

Thanks Scott and good morning. Before we get started I would like to note that for comparative purposes, I'll be speaking to the results for operations classified as continuing for the prior period and not those classified as discontinued. In the fourth quarter of 2012, continuing operations were comprised of a full quarter of El Chanate and one month of the YD open pit, whereas 2013 includes El Chanate, the Young-Davidson open pit, and two months of the Young-Davidson underground.

Turning to our results on Slide 10, fourth-quarter revenue from continuing operations was $51 million, driven by sales of approximately 40,000 gold ounces at an average realized gold price of $1,257 per ounce. Revenue was 20% lower than the prior year's quarter due to a 27% decline in the realized gold price. Sales and production were higher than Q4 of '12, largely due to the Young-Davidson underground coming online in October of 2013.

Fourth-quarter adjusted operating cash flow was approximately $18 million or $0.07 per share, compared to $0.11 per share in Q4 of '12. The Company recorded a net loss of approximately $106 million or $0.43 a share during Q4, compared to a net loss of $0.48 per share in Q4 of '12. After adjusting for a one-time charge that I'll review in more detail shortly, net loss was $5.5 million or $0.02 per share in Q4, compared to a net income of $13.5 million or $0.05 per share in the fourth quarter of 2012. When compared to the prior year, the Company's fourth-quarter adjusted net earnings were impacted by a lower gold price and higher costs related to the Young-Davidson open pit.

Turning to Slide 11. Year-to-date revenue from continuing operations was $228 million, driven by sales of approximately 161,000 gold ounces at an average realized price of $1,395 per ounce. Revenue, sales, and production were higher than the prior year, largely due to the declaration of commercial production on YD during Q4 of 2012. Year-to-date adjusted operating cash flow was approximately $78 million or $0.31 per share, compared to $0.13 per share for 2012.

Year to date, the Company recorded a net loss of approximately $177 million or $0.71 a share, compared to a loss of $0.35 per share for the same period in 2012. The year-to-date loss is primarily related to the non-cash impairment charges. After adjusting for one-time charges, net income was $13.9 million or $0.05 per share in 2013. Adjusted earnings for the same period last year were $0.06 a share.

Moving to slide 12, our operating results. As previously noted the operational results included results for our El Chanate and Young-Davidson mines only. Young-Davidson produced approximately 29,600 gold ounces in the fourth quarter, the underground also produced 3,500 preproduction gold ounces for a total of 33,000 gold ounces. Young-Davidson open pit realized cash costs of $983 per ounce, and the underground realized cash costs were $663 per ounce. Overall cash costs were $850 per gold ounce for the fourth quarter.

El Chanate produced 16,400 ounces or 11% more ounces than in Q4 2012, primarily due to unscheduled ADR plant maintenance during the fourth quarter of '12. Total cash costs at El Chanate were $615 per gold ounce in the quarter, an 18% increase over Q4 of last year. This increase is primarily due to the application of higher quantity solution to accelerate gold recoveries and the reduction in capitalized stripping costs. Combined, our operations achieved costs of $771 per gold ounce in the fourth quarter of 2013.

Moving to the Slide 13 on our year-to-date results. Young-Davidson produced 89,200 gold ounces., During 2013, the underground produced 31,500 preproduction ounces as well, for a total of 1,270 gold ounces. The open pit in 2013 realized cash costs of $757 per ounce, while the underground realized cash costs were $663 per ounce. Overall, cash costs were $744 per gold ounce.

During the year, El Chanate produced 71,900 gold ounces, in line with production from 2012. Total cash costs at El Chanate were $592 per ounce for the year, a 28% increase over the same period last year, and the variance primarily due to the higher processing costs mentioned earlier. Combined, our operations achieved costs of $676, and is basically in line with our previously stated guidance.

Capital expenditures on Slide 14, I'll provide the breakdown of our 2013 CapEx. Our site capital for El Chanate and Young-Davidson was $37 million and $185 million respectively, our capitalized interest was $8.4 million, and exploration, which includes the land acquisitions at El Chanate in and around the El Chanate mine amounted to around $19 million.

Moving to slide 15. Slide 15 provides a detailed reconciliation of our adjusted earnings for the fourth quarter of 2014. As noted earlier, the reported loss on continuing operations for Q4 was $106 million or $0.43 per share. The result includes an impairment charge and inventory adjustments as previously indicated in our preproduction release in January.

The adjusted result adds the non-cash impairment charges of approximately $60 million, $60 million consistent to the $74 million write-down and impairment related to El Chanate, which is primarily offset by a recovery in our retained interest royalty of Crocodile Gold. There's a non-cash inventory adjustment added back of approximately $37 million, there's a $19.7 million deferred tax expense related to foreign exchange added back, and we've added back $4.9 million related to the impact of the New Mexican mining tax on deferred taxes. Other adjustments deducted include $3.7 million of unrealized gains on foreign exchange, and $19 million of other adjustments, which includes tax related to the majority of the reconciling items above. After taking into account all the items noted on this schedule, the adjusted net loss for Q4 is $5.5 million or $0.02 a share.

As noted on slide 17 in the appendix, for the year December 31, 2013 adjusted earnings was approximately $13 million or $0.05 a share. All-in sustaining costs have been reported at $1,232 per ounce for the fourth quarter, and $1,181 year to date, which is in line with our guidance. For details please refer to the non-GAAP measures section in our MD&A.

With regards to taxation, we've completed our year-end review of available tax pools, and we do not expect to pay cash taxes at Young-Davidson for the remainder of this decade and early into the following. Also during the first quarter of 2014 we have received notice that we expect to collect approximately $24 million in taxes receivable related to losses carried back to prior years. Going forward, taking into account the changes to the Mexican tax law, our overall effective tax rate is expected to remain in the range of 25% to 30%.

Just in closing, as of December 31, our liquidity remains in and around the $220 million mark. And with that, I'll turn the call back over to Scott.

Scott Perry

Okay. Thank you Rob. So ladies and gentlemen, just transitioning I guess to the next slide, which is Slide 17, entitled 2014 operational guidance. As you would have seen, we put out our guidance for the full year. A number of key things here, but I think referencing the charts on the bottom of the slide, really I put forward somewhat of a recipe for success. Referencing the chart on the bottom left, in terms of revenues, in terms of our gold production profile on a Company-wide basis, we're looking for our gold production to increase by up to 25% this year relative to the prior calendar year.

In terms of capital investments chart there in the middle, now that we have exited and completed the construction phase at Young-Davidson, we are seeing a significant 40% decrease in terms of our capital investments profile. And that chart there on the bottom right in terms of our all-in sustained costs per ounce, again we are seeing a nice decrease there relative to the prior calendar year.

These trends that you are seeing are trends that should be with us for the next two to three years, again, being underpinned by the growing level of gold output at Young-Davidson. So the next two to three years at a minimum, we would expect to see growing gold production profiles, growing production per share in terms of our capital investments, they'll continue to taper as we move forward year over year. And again, this growing level of production is going to continue to decrease all-in sustaining costs profile as we move forward year over year.

The other thing that we would probably highlight just like most of our Canadian peers, that we do have a lot of our outgoings, be it operating expenditures or capital expenditures, they are denominated in Canadian dollars. If you look at Young-Davidson for example, we estimate that some 95% of those outgoings are actually Canadian dollar denominated. So good optionality there. Just seeing the devaluation in the Canadian dollar. Again in our guidance we did assume an exchange rate of CAD0.95 to the US dollar, so seeing the Canadian dollar trending at CAD0.90 is a favorable tailwind for the Company.

Transitioning to the next slide and the last slide of our presentation deck, entitled positioned for value creation. It's really just a slide that I would put forward that represents a lot of the favorable attributes that define AuRico and potentially position AuRico for compelling valuation opportunity moving forward. Just looking at some of the key highlighted ones. Just upon this jurisdiction, we continue to be a Company with an asset base of 100% domiciled in North America, which is very favorable from a jurisdictional perspective. We put forward that both of our assets are high-quality core assets moving forward.

What we particular like is that the natural organic year-over-year production growth profile, there's natural scale up, and particularly so given that we've exited the capital construction phase and the level of capital intensity is behind us. Both assets should position well from the industry cost curve, they should be at the lower end of such curve. And probably my favorite is the particularly Young-Davidson, a very long lived asset and we're looking at a potential mine operating life of 20 to 25 years based on the current profile. And therein there really is a lot of optionality in terms of how we can look to compress that mine life moving forward. And I think in my earlier slides I've sort of spoken about some of the thinking there as we move forward.

The balance sheet, very focused on that. Always want to make sure that we've got the utmost liquidity moving forward. We definitely want to be in the cab of the haves, as opposed to the have-nots, and we're making sure we've got the utmost liquidity moving forward with our business plan given a variable gold price environment.

I think the last one there, very focused on whatever we do moving forward not being – always being accretive to our shareholders, very focused on shareholder value creation, and you've seen that in the past in terms of the share buybacks as well as our ongoing dividend policy.

So with that ladies and gentlemen, Robert and I will wrap up the formal part of the presentation, and will pass it back to the operator to take any Q&A please.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from Cosmos Chiu with CIBC. Your line is open.

Cosmos Chiu – CIBC World Markets

Thanks for hosting the call. I've got a few questions here. They be first off if I can start off with Young-Davidson. This might be too early to tell but how has it gone so far in terms of the integration with the pace backfill plant – anything surprising so far either positive or negative?

Peter MacPhail

Hi, Cosmos. It's Peter.

Cosmos Chiu – CIBC World Markets

Hi, Peter.

Peter MacPhail

The plant started out very well. It actually came in under budget and ahead of schedule. We're pouring paste first scope is – they’re large scopes so it takes a while to fill them and the first one is approaching fill and everything is going fine.

Cosmos Chiu – CIBC World Markets

Okay. Maybe another question I have in terms of – I guess El Chanate maybe a question for Rob here. What's the carrying value now in terms of El Chanate after the write up – the non-cash write-down to Q4?

Robert Chausse

It's $185 million. And no goodwill remaining.

Cosmos Chiu – CIBC World Markets

Okay. But Rob, that's based on current reserves, right, and judging from Scott comments on Slide 7, at least I believe in terms – it sounds like Scott you’re pretty confident that it can continue to decrease or add to reserves beyond 2000 – the future day.

Scott Perry

I want to sort of clarify we're definitely seeing a lot of prospectivity in El Chanate moving forward and as a result of that our expression programs are always success-based programs and El Chanate has been awarded the lion’s share of our expirations budget so we’re seeing good prospectivity, you’re seeing good potential future resource delineation. And it’s with the prevailing gold price and economics and engineering that will determine whether or not it comes to the reserve category.

Cosmos Chiu – CIBC World Markets

Okay. And then maybe in terms of I think I've asked this before. In terms of the or coming from the underground in the Young-Davidson sort of jumping around – is there still any more – is it all now coming from the shaft or is there any still anymore coming from the rants?

Scott Perry

It's by and large – all of it 100% of it is coming up the shaft and hoisting facility. Have said our activity make jokes with the guys but he's probably all the keys Amtrak's [ph].

Cosmos Chiu – CIBC World Markets

Okay. That's all I have. Thank you.

Operator

Your next question comes from the Adam Melnyk with Desjardins. Your line is open.

Adam Melnyk – Desjardins Securities

Good morning. A couple questions here. First you drew down $75 million on the revolver in the fourth quarter. Just wondering if you can walk us through the thought process there? Is it as simple as having the mining before you need it or you’re expecting any capital expenditures in the first half of 2014 to be larger?

Robert Chausse

Yes. It's as simple as that. At the time that we made the draw we thought it was a prudent step to make third the markets I think gold had broken through 1200 with an 1180 and we just thought it was the right thing to do and which show our ability to fund future operations and it follows what Scott had said earlier on our liquidity views and our strong balance sheet and our wanting to be conservative.

Adam Melnyk – Desjardins Securities

Okay. So 1180. So when did you make that drawdown?

Robert Chausse

It was in December I believe.

Scott Perry

Yes.

Adam Melnyk – Desjardins Securities

December. Okay. And it looks like the interest rate there is a LIBOR plus sliding scale based on your leverage ratio. Can you give us an idea of what that is right now?

Robert Chausse

It's around 3%. 3.5%.

Adam Melnyk – Desjardins Securities

And LIBOR plus 3.5%?

Robert Chausse

No total. Would be 3.5%.

Adam Melnyk – Desjardins Securities

Okay. Okay. And Scott, based on some of your commentary, it sounds – it sounded as if you’re looking to roll out your debt into longer-term maturities. With that, I’m assuming that would mostly apply to the revolver that you have in place now?

Scott Perry

That's correct. Yes.

Adam Melnyk – Desjardins Securities

Okay. And when would we expect to see something in that front?

Scott Perry

I'd like to think that it will be shortly.

Adam Melnyk – Desjardins Securities

Okay. So kind of second quarter event or would you think they’d get up to this quarter?

Scott Perry

I hope so. It's always going to be based on the prevailing markets and what have you but a portfolio that really position us very fast and we have optionality in terms of when and where we may want to be launching any possible financing but I’ll leave you with the word shortly.

Adam Melnyk – Desjardins Securities

Okay. And then, maybe just a last question. You made about $21 million of investments in 2014 and available-for-sale securities. I think that included $15 million in the fourth quarter. Is there any color you can provide us on those investments?

Scott Perry

Yes. Sure. So I think what our portfolio there is we just allocated it's only a small portion of our liquid cash position during Q4 as to a number of passive investments. It was really a portfolio approach. We buy and sell these things and move in and out of these things. And as we speak right now if you look at those investments, you have traded up quite a bit and I think we invested just under $20 million or so and I think today they were close to $30 million and as it is since we came into February really. We’ve been monetizing some of those. By and large, I think we’re just being opportunistic in taking advantage of what we thought was a large discrepancy in terms of just general across the board equity evaluations versus the prevailing gold price.

Adam Melnyk – Desjardins Securities

Right. So in the past, I think you’ve been pretty candid about your focus on your internal growth initiatives and the quality of those as opposed to external M&A, is that strategy still place? Has anything changed there based on how the ramp-ups is going at Young-Davidson?

Scott Perry

No. I think 100% of our focus continues to be on execution and I think you have seen that reflect in our results as we move forward over this calendar year. We just want to continue focus on de-risking this asset, Young-Davidson in the eyes of the investment community and in the eyes of the capital market. I'd like to put forward that's what ultimately going to drive compelling valuations in terms of multiples or what have you. And I think that's the best immediate strategy for the company moving forward and I think as you may have heard from some of my remarks, more and more we're now looking at potential organic growth opportunities at our flagship asset. One of its most favorable attributes is its low mine life, also provide lot of optionality for potentially looking to compare that mine life and happily invest in the asset organically to potentially create further shareholder value, but that would be more from a midterm perspective it's not something in the immediate forefront.

Adam Melnyk – Desjardins Securities

Okay. Thanks for the color there. That's all my questions.

Robert Chausse

Thanks.

Operator

(Operator Instructions). The next question comes from Anita Soni with Credit Suisse. Your line is open.

Anita Soni – Credit Suisse

Guys and congratulations on maintaining your reserves and resources despite lowering your gold price.

First question is with regard to the reserves and resources. What you include in your cost structure when you’re determining your reserves at the 1250 gold price?

Peter MacPhail

We include the operating costs associated with accessing those areas of the mine as well as a portion of the capital required to get there.

Anita Soni – Credit Suisse

Okay so you’re including some sustaining capital.

Peter MacPhail

Definitely.

Anita Soni – Credit Suisse

Okay. And then with respect to the mill expansion, can you just talk a little bit more about how you are thinking about that flexibility going forward?

Scott Perry

Yes. I think what I want to put forward, Anita, is our guidance for this year has sort of averaging between 7000 and 7500 tonnes per day on a fruitful level in the mill facility and that still remains that's still is our outlook that's definitely what we want the analyst community and our shareholders to be expecting from us, something that Peter and the team have been working on those to try to secure that permit to increase the 10,000 tonnes per day and that's always been a required permit because as you know in due course we do –we’ll have the underground operating at 8000 tonnes per day and there we need the mill at 8000 tonnes per day. You need to operate greater than 8000 tonnes per day consistently. You always do have scheduled periods of downtime what have you – so you need permitted capacity that is larger than 8000 tonnes per day who now secure that which is excellent.

Peter and the team – if you look at some of the things they've been evaluating and working on, they are increasingly demonstrating that we may have the ability to operate higher than 7500 tonnes per day. We haven't committed to it as yet but there could be some immediate optionality that's coming at us and that would be very favorable because if we do commit to that, that would give us the ability to treat some of that open pit stockpile inventory allotted earlier that we may have been previously expecting. And I think that itself should be accretive to cash flow profiles moving forward. So I can't give you a firm commitment either but it's something that we are evaluating as we speak.

Anita Soni - Credit Suisse

All right. Thank you very much.

Operator

Your next question comes from Dan Rollins with RBC Capital Markets. Your line is open.

Dan Rollins – RBC Capital Markets

Yes. Thanks very much. Rob I was just wondering if you could just put some clarification on the comments regarding the cash taxes. Does that include the anterior mining today? With that also be sheltered for the rest of the decade?

Robert Chausse

No. It wouldn't. It's just essentially federal provincial tax.

Dan Rollins – RBC Capital Markets

Okay. Perfect. And then Scott, I don't know if you are able to give any color on this just given it's more of a quarterly by quarterly – looksee here. But what should we expect maybe for a great profile from the open pits for this year? So when do you expect to sort of kick in those stockpiles? And more importantly what should we expect for the operating strip ratio because I guess the majority of that won't be a capitalize as of this year?

Scott Perry

Yes. So in terms of Q1, in terms of great profile, probably Q1 and Q2 I would sort of you encourage to assume a great conservatively around sort of 1.1 in terms of the operating stripping ratios. It should be lower than what you saw in Q4. And seeping lower as 321 thereafter in Q3. The open pit will be fully exhausted so in terms of open pits material being presented to the mill facility a lot of that will be coming off as long-term stockpiles and generally put forward that we have an average grade of around 0.8 grams per tonne. I just want to look to Peter quickly and say Peter would clarify and I put forward to him.

Peter MacPhail

Yes. So it's the mine grade will be around that. Some of that will going to the stockpile because we will be mining it faster than the mill will take it in the first – in the next few months so we will be having the opportunity to high grade some of that and up to the midpoint of the year and then draw some of that stockpile down.

Dan Rollins – RBC Capital Markets

Okay. So basically the mine grade is going to be that 1.1 but you'll probably be maybe a little bit lower than what you were processing in Q3 and Q4 to the mill because of that ability to stockpile.

Scott Perry

Lower.

Peter McPhail

Yes.

Dan Rollins – RBC Capital Markets

Lower? A little bit lower? Okay.

Scott Perry

Definitely in Q3 or Q4.

Dan Rollins – RBC Capital Markets

Okay. Perfect, perfect. And then just with respect to getting up to 10,000 tonne permit on the mill is great. Longer-term – if we look out five years once you've got the upper and the underground up and running at steady-state at 8000 tonnes. Can –do you have enough capacity within that main shaft to haul the additional throughput or would some of that potentially going to benefit maybe a future development of the YD West zone?

Scott Perry

Again, I'm glad you put the caveat in your question that five years out getting a little bit ahead of ourselves but I think it'd be more future development of YD West. Yes.

Dan Rollins – RBC Capital Markets

Okay. Perfect. Thanks Scott. Appreciate it.

Operator

Your next question comes from John McClintock with Pareto Securities. Your line is open.

John Clintock – Pareto Securities

Hi Scott. Just a quick question on the one asset that doesn't get much love to commence is there any drilling going on and if so when and how much?

Scott Perry

Hi John. Yes. We've got approximately up to around $5 million committed for commence this year. Again we did do quite a bit of drilling there last year and I think as I highlighted in this call our expiration investment budgets are always success based and I guess on the back of the success we saw last year we are going to ascribe more funding this year. Most of the drilling will take place during the summer season.

John Clintock – Pareto Securities

Yes.

Scott Perry

In British Columbia so it is sort of going to be a midyear sort of new Q3.

John Clintock – Pareto Securities

That's all it is. But good quarter.

Scott Perry

Thank you.

Operator

Your next question comes from Anita Soni with Credit Suisse. Your line is open.

Anita Soni – Credit Suisse

I think it's of $3.6 million –I’m sorry it’s actually $2.7 million in the stockpile is that included in the reserve statement right now?

Scott Perry

Yes. It is. Yes.

Anita Soni – Credit Suisse

And so where – which – it's within the 140,000 ounces in the reserves?

Scott Perry

That is correct.

Anita Soni – Credit Suisse

Okay. All right. Thank you.

Operator

Okay. This concludes the Q&A portion at this time. Thank you for participating in today's conference call. You may now disconnect.

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