Coeur Mining's (CDE) CEO Mitch Krebs on Q1 2014 Results - Earnings Call Transcript

May. 9.14 | About: Coeur Mining, (CDE)

Coeur Mining, Inc. (NYSE:CDE)

Q1 2014 Results Earnings Conference Call

May 08, 2014 11:00 AM ET

Executives

Bridget Freas, Director of Investor Relations

Peter Mitchell - SVP and Chief Financial Officer

Frank Hanagarne - SVP and Chief Operating Officer

Hans Rasmussen - VP Exploration

Mitch Krebs - President and CEO

Analysts

John Bridges - JPMorgan

Chris Thompson - Raymond James

Chris Lichtenheldt - Dundee Capital Markets

Matt Vittorioso - Barclays

Garrett Nelson - BB&T Capital Markets

Dave Katz - JP Morgan

Operator

Good morning and my name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the First Quarter 2014 Financial 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).

Bridget Freas, Director of Investor Relations. You may begin your conference.

Bridget Freas

Thank you, Chris. Welcome to our first quarter 2014 earnings conference call. I am Bridget Freas. We have posted slides to accompany our remarks on our website at coeur.com. Please review the cautionary statement and the risk factors in our 2013 10-K and first quarter 10-Q for risks and uncertainties that could cause actual results to differ from today's forward-looking statements.

Joining me are Peter Mitchell; Frank Hanagarne; Joe Philips, Hans Rasmussen and dialing in from London is Mitch Krebs. Mitch, please go ahead.

Mitch Krebs

Thanks Bridget. Hi everybody, thanks for dialing in. I think a key takeaway from our first quarter is that the company achieved its production targets at costs that are tracking below our full year cost guidance.

We are seeing a greater level of consistency from our operating mines which is something we've stressed as a key objective for us. Another key, obviously is to keep that going throughout the rest of the year.

We announced our first quarter production results about a month ago. On a silver equivalent basis compared to last year's first quarter Palmarejo increased 10%, Rochester was up 6%, San Bartolome's production was down slightly and Kensington's production was consistent with the first quarter of last year.

I would like to focus on three areas from our first quarter results that we announced last night. Cost, cash flow and liquidity. I'll start with costs. Our first quarter all in sustaining costs per silver equivalent ounce were down 4% to $19.12. Now this is a companywide number which means Kensington is included in that calculation on a silver equivalent basis. So that's an exclusive all in number for us. In there is this year in this quarter was $0.75 an ounce related to feasibility study related costs that we incurred during the first quarter. It also incorporates all of our capital expenditures from the first quarter which totaled $11.9 million. And we've had some good disclosure in the back of the release and in the 10-Q on how precisely our all in sustaining costs are calculated.

Our cost applicable to sales per silver equivalent ounce at our primary silver mines was $13.25 in the first quarter, which is down 6% compared to a year ago and mostly by a 24% reduction over the fourth quarter at Rochester to $12.67 per silver equivalent ounce, which is the lowest they’ve seen in more than two years.

Now I will talk about cash flow; despite a 33% lower silver price and a 20% lower gold price, we still manage to generate about $50 million of operating cash flow before changes in working capital during the first quarter. Our capital expenditures dropped off significantly, which puts us on a full year run rate for CapEx that is well below our 2014 guidance of $65 million to $80 million.

Palmerajo, Kensington and San Bartolome were all cash flow positive during the quarter and the only reason Rochester wasn’t is because its pad inventory increased by $12.4 million during the quarter as we keep building up the amount of material there under leach. Kensington’s cash flow was its highest in three years during the first quarter.

Now in terms of liquidity we ended the quarter with nearly $320 million of cash and equivalents and short-term investments that puts our net debt at approximately $145 million. I think our balance sheet is straight forward and flexible with just a conservative level of debt on the balance sheet. And this flexibility and liquidity allows us to weather future deterioration in prices should that take place. And it also allows us to be opportunistic should a unique opportunity come along that can strengthen the company’s overall portfolio of assets.

Although we got solid start to the year, our share price is down over 20% year-to-date. We believe the price weakness that we’ve seen has been driven by investors’ concerns in three main areas; and I’d like to just say a couple of things about each.

One is the mine life and profile at Palmarejo and the impact the Franco-Nevada gold stream is having on that mine’s cash flows. I think the second concern is Rochester’s performance and how is that ramp up going. And then I think the third one is what are we going to do about La Preciosa; are we going to move ahead on that regardless of economics or are we going to differ or delay that project. And we’ll have more to say about each of these areas as the year goes on, but I do want to hit on each of them for a couple of minutes each.

Let’s start with Palmarejo. Now costs are trending down there, the presentation I gave earlier this week at the European Gold Forum in Zurich broke out Palmarejo’s cost per ton going back I think to the second quarter of last year. We’ve included that slide with the first quarter cost information in our slide deck there today. And it shows some really positive trends, open pit mining costs have declined about 16% over that period of time, down to $1.47 an ounce, a ton excuse me. Underground mining costs have dropped almost 30%, down to about $37 a ton. And our processing costs have declined about 15% at Palmarejo to approximately $23 a ton.

So these are great accomplishments, our team is doing a great job. Obviously it will help the cash flow out of Palmarejo, but it also allows us to apply those lower costs in particular to the Guadalupe deposit and take a fresh look at the economics of mining Guadalupe under a more limited development scenario. And obviously bringing Guadalupe back into Palmarejo’s mine plan in a way that is economically feasible would be a big deal for us.

As you know, Guadalupe contains over half of Palmarejo’s total reserves. We also included a slide in today’s presentation that breaks out the reserves at Palmarejo between open pit and underground and then between put the main Palmarejo mine and Guadalupe, so you can get a good sense of what contribution Guadalupe has to the overall reserve profile.

The second thing I would like to point out about Palmarejo and as we think about the future of Palmarejo is the fact that historically open pit operations have been the primary source of mill feed but we make a lot less money from the open pit than we do from our underground operation there. In fact we get about 90% of our operating margin from the underground. So by reducing open pit mining rigs, the mine we think will be more profitable, we think recovery rates will increase with less oxide material being fed into the mill and our costs, both processing costs as well as overall mining costs should decline. And we’ll have more of these details solidified here in still in the second quarter. And that will be incorporated into a longer term mine plan for Palmarejo that we look forward to sharing with you. And we will file an updated technical report by the end of the second quarter. So I think that’s going to address one key area of concern and could be I think a real catalyst for us.

And now as far as Rochester’s performance goes, we’re on track there versus our plan so far this year. Obviously costs are down, production is rising; in fact April silver production was Rochester’s highest in almost six years. Almost 40% of our company’s silver equivalent reserves are at Rochester which we think is a great thing and really sets us up nicely there for the next 20 plus year. It's obviously in a great jurisdiction and has relatively low capital requirements, costs are declining and it’s high ROI projected. We intend to demonstrate to you all during the rest of the year that Rochester is really [diving in] and is meeting our and it’s maybe even exceeding all of our expectations.

Now on the La Preciosa topic, we're beginning pull together now the results that are coming in from all of the feasibility study work that is taken place since last summer. And it's going to end up being a much more attractive project than what the PEA showed last June. But it doesn't necessarily mean, we feel pressured in fast tracking its construction. We will only advance La Preciosa when we're confident that we can realize an appropriate return to compensate our stockholders for the risk associated with the major development project like this.

In addition, we won’t start building any new mine unless and until we have the construction cost prefunded and on our balance sheet. We’ve seen that movie play out before where you don't have that and that’s -- that never ends well it seems. One last comment, just to hopefully put a fine point on it. We're very sensitive to the market appetite right now regarding big CapEx projects that can really stretch a company's resources.

So we'll be taking that on, the consideration here as we pull together the results of the feasibility study that regardless of what we do we'll share those results and so everyone will know exactly what we feel we have there at La Preciosa.

It's clear to me and I think to our team that we are operating more effectively at all levels of the organization, our planning, our execution, our safety performance and then the level of coordination and focus on the opportunities we have at our company and the challenges we face. With a set of operating assets that are performing better and better, with a flexible and liquid balance sheet and costs that are clearly declining them. I'm excited about the value and the certainty the clarity we can provide our stockholders during the remainder of the year.

So, with that thanks again for joining us on call today and operator we'd be happy to take questions now.

Question-and-Answer Session

Operator

(Operator Instructions). Your first quarter comes from the line of John Bridges from JP Morgan. Your line is open.

John Bridges - JPMorgan

Hi, Mitch, everybody. Thanks for your comments on Palmarejo. I was just wondering to what extent can you identify resource base there at Palmarejo. I know you've put what you've got there, but what sort of life can you see at the project based on your understanding of the thing at the moment?

Mitch Krebs

Yes, I'll give you my view John and then Hans maybe you could chime in from an exploration perspective. But I think our current reserve in the open pit is right now a little less than two years of mine life there. I know that it sounds alarming in short, but when you think about in the context of my comments that we only get about 5% of our operating margin out of the open pit. How long the open pit does or doesn't go, doesn't really move the needle a lot, if we're driven primarily by how do we maximize our cash flow and less so by how many ounces do we produce.

When you think about the underground being kind of 2,000 to 2,500 ton per day scenario and with what we have at Palmarejo in reserves, what we have at Guadalupe in reserves and then what we have in [M&I] both Palmarejo and Guadalupe. I can see a very long mine life as a 2,500 ton a day higher grade higher margin underground operation.

With all that said, I would say we have only now this year John, then I think a really good job of integrating exploration and operations to really coordinate at Palmarejo and prioritize what is it that the mine needs to be successful in the short term and the medium term and in the long term, and we have -- I think in the past have sort of only scratched to surface of what is there at Palmarejo and I think now we finally have a much better prioritization as far as where we have drills, what we are drilling, why we are drilling them in terms of targets.

And Hans maybe you want to share a little bit from there in terms of what we are looking at there, some of the targets and maybe why we haven’t drilled them up until this point.

Hans Rasmussen

Of course. This is Hans, the focus has been to extend the open pit mine life despite the economics that Mitch just mentioned, simply because we want to offset every possibility there before we make any decisions and Q3, 2013 release we alluded to some results from a zone at Palmarejo and we continue to see good results from that zone today. So we focused on that zone in the last month or so, that both results will come bear fruit I think in the next couple of months in terms of what we see as a future resource there in the pits. But as Mitch mentioned, we're getting much more joy from underground. So as we have got two rigs operating into pit, exploring the pit, we’ve advanced to three rigs now exploring for the future underground resources that would represent something like the clavo 76 or clavo 108 at the mining right now.

And that is our priority for the remainder of the year and those are abundant targets up and down the trend with the seven kilometer trend, 70% of the project has not been explored. So we’ve got a lot of work to do, but we’ve got a lot of good targets to continue to explore.

Mitch Krebs

John does that give you, what you were looking for?

John Bridges - JPMorgan

Yes. That’s encouraging. Thanks I will take another look at your slides. Thank you.

Mitch Krebs

Okay. Thanks John.

Operator

Your next question comes from the line of Chris Thompson from Raymond James. Your line is open.

Chris Thompson - Raymond James

Thanks a lot and good morning, Mitch congratulations on the quarter.

Mitch Krebs

Thank you. You made it on, that’s good to hear.

Chris Thompson - Raymond James

I was waiting. Two quick questions. One on the expansion of San Bartolome, can you just comment on that quickly how is it going there?

Mitch Krebs

Yes, Frank, you want to take that?

Frank Hanagarne

Sure. Hi Chris this is Frank. We completed the installation of the equipments to raise our throughputs at San Bartolome last year, cleaning up a few ancillary parts of that project, I mean first quarter of this year. We basically installed a cone crusher in order to beat the mill of smaller size, distribution of rock, the crusher is operating well. And we are seeing increased rates as we go forward everything seems to be working according to plan in my view at this time.

Chris Thompson - Raymond James

Great. Just can you remind me again, what is the plan as far as throughput at the mine?

Mitch Krebs

We want to maintain a 6 million ounce per year net normal range of silver production per year. And we’re going to be seeking to be between 4,500 and 5,000 metric tons milling rate per day to achieve that, that’s the grades that we have.

Chris Thompson - Raymond James

Are you at that point now?

Mitch Krebs

Yes, we are at here and there. We’ve just managed and everything comes down to the matching up and being in balance with the mine rate. And had adds inflows just to that. We did have a stockpile that we grow up from, but we’re seeing good milling rates as required to maintain our plan production.

Chris Thompson - Raymond James

Great, thank you. Just quickly on Rochester. Two things I noticed, a good grade, is that sustainable at that sort of level?

Mitch Krebs

The entire ore body and the reserves that we are working with are pretty consistent graded material for both gold and silver, puts much lower on the gold. We do get into periods where as we’re mining the stockpiles we’re seeing materials coming out, our grade will spike up or we’re seeing they’re sustainable over days if not a week type timeframes. But just across the board it’s a pretty consistent ore body as the grade has been distributed there for the primary amount of silver.

Chris Thompson - Raymond James

Okay, thank you. And then the final question on Rochester again, impressive costs there on the unit cost per ton basis. What should we be modeling I guess moving forward?

Mitch Krebs

Yes, sure. On a cost per basis, we continue to push our ore placement rates up in our day-to-day performance and that means that we're also mining at higher rates. We're currently mining more in the open pit area that we have in the past, shifted that distribution between stockpile and mine just a bit, which is favorable to our cost per ton and we'll see that continue throughout the remainder of the year.

Chris Thompson - Raymond James

Okay, all right. But would you say that the costs that you guys delivered I guess on a per ton basis in Q1, is it realistic to model that on a forward guidance basis?

Mitch Krebs

I think it's more likely that you will see that decrease through the remainder of the year and I'm going to say within the range of about $0.10 per ton.

Chris Thompson - Raymond James

Okay, perfect. All right guys. Thank you very much.

Bridget Freas

Thanks Chris. See you.

Operator

Your next question comes from the line of Chris Lichtenheldt from Dundee Capital Markets. Your line is open.

Chris Lichtenheldt - Dundee Capital Markets

Good morning, guys. And thanks Mitch for the strategic outlook there, that's helpful. I got a few questions; I wanted to go back to Palmarejo for a minute. You talked about with looking like the short of reserve life, you mentioned Guadalupe. When we look at the slide that you provided with respect to how much of the reserve Guadalupe accounts for, in the underground, the grades there that you hold for silver and gold are actually a little bit lower than what you have for the Palmarejo underground.

And even after the cost reductions you mentioned this quarter after paying the royalties there still no free cash flow there. So when talk about Guadalupe, what allows you to contemplate that as a solution to lengthen the reserve life, is there some improvement there that you think you could generate cash flow from that area or what would have to change?

Peter Mitchell

Yes I think, I'll answer that and then Frank maybe you can fill in any gaps that I leave. But I think looking at that Chris under more I think in my comments I said a more limited development scenario. So, really pulling in a mine plan at Guadalupe that focuses on the higher grade core of those reserves to at least allow for us to justify from an economic perspective, a more limited development plan to get in there, not sterilizing anything, but setting us up, so that we can mine some of the higher grade components of Guadalupe doing it at lower cost and then seeing those higher recoveries out of the processing plant.

Those are the key metrics there that we think would lead to a much better outlook than what we were looking at say late last year when we made the decision to defer Guadalupe. And clearly the royalty is a big piece of where cash flow from Palmarejo goes. There is no denying that. And that's a big focus for us is trying to think through how maybe that can be improved later that could be helpful to us to Palmarejo and ultimately to Franco-Nevada.

So, that's on our minds and obviously that's stating the obvious, that’s a big deal there at Palmarejo and something that we were mindful of and are thinking about as we look at what the future Palmarejo looks like.

Chris Lichtenheldt - Dundee Capital Markets

And does that higher grade opportunity to get Guadalupe make more sense or in your mind is that something that occurs after the minimum, I think 400,000 ounces are delivered to Franco?

Peter Mitchell

We are still working on that Chris and that will be a key part of what we will have to talk about later this quarter in terms of timing. That’s a bit of a -- there’s a few layers to that in terms of the open pit and like Hans was talking about some of the drilling where we are having some good results there in the pit. If the economics of that surface mine extend then that sort of cracked back into our decision making around the timing of Guadalupe as well and we need to just make our choices around what’s the maximize cash flow and prioritize our efforts that way. Frank did I leave out anything that junks?

Frank Hanagarne

No, I think you probably did pretty well. I don’t -- can you comment on that Chris. Is there more to…

Chris Lichtenheldt - Dundee Capital Markets

I don’t know, I think there could be a question relative for now and we’ll look forward to the technical studies to see how it all may play out, particularly how many times you have with the higher grade, because these grades doesn’t look like potentially enough to pay all the bills once the royalty is paid.

But I’ll move on to my next question at Rochester; what type of balance sheet, I think you had some $94 million of inventory (inaudible) in inventory at Rochester primarily I presume. Can you tell how many ounces that is?

Hans Rasmussen

Yes. Peter and frank, you guys have that?

Frank Hanagarne

I do not have the answer to that Chris; we can find that out and certainly respond.

Chris Lichtenheldt - Dundee Capital Markets

Okay. I’ll settle back offline. And then lastly Mitch, maybe I’ll just ask you again on La Preciosa, you talked about potentially that’s starting to look a little better as the studies come in. When you say -- is it too early to put some framework around that in terms of pricing? I mean is it something that I $20 silver you could envision being economic or it’s just still work in progress?

Mitch Krebs

Let me just say, and I’ll take the easy way out on that Chris and say it’s still work in progress. But we are very reality based there. I mean it’s a $20 silver price environment right now at best, but we used a $25 silver price as you may recall in the PEA last June. So the work that we’ve been doing on that project has been around how do we make, or can we make the La Preciosa economic something less than $25 and closer to current spot prices. And so that’s been a focus, and that’s what we're trying to do and we’ll see where it all shakes out. But I guess the biggest point I want to make on La Preciosa is to address the concern out there and we would -- we're so committed because we made this acquisition last year of Orko Silver and then we just immediately feel like we have to march forward into the next step up right away, which would probably require some additional capital because with $320 million of cash on the balance sheet and at least the PEA CapEx for La Preciosa being 348 million, the math doesn’t work.

I can see why people would be concerned about that. And so I wanted to just try and make it clear to people that we're going to follow this feasibility through to the end, but we're going to make a decision that’s based on -- grounded and disciplined I guess the good way of seeing it.

Chris Lichtenheldt - Dundee Capital Markets

Okay. That is helpful. Thanks. That’s it for me.

Mitch Krebs

Yes.

Operator

Your next question comes from the line of Matt Vittorioso from Barclays. Your line is open.

Matt Vittorioso - Barclays

Yes, good morning guys. Thanks for taking my question.

Mitch Krebs

Hey Matt.

Matt Vittorioso - Barclays

Yes. How are you. Just back to Palmarejo and Franco-Nevada, I certainly appreciate the detail around some of the efforts that you are making there to improve cash flow. I am just curious, if the mine were to continue to be cash flow negative after royalties, what is your recourse with regard to Franco-Nevada? I'm is that -- I’m just not sure how that agreement works. Can you just tell them we're not going to continue to operate at the cash negative position? Are you forced to continue to produce until you meet the minimum 400 or the minimum balance there? How would that work? Is there anything in the agreement that allows you to sort of negotiate with Franco-Nevada given the cash negative nature of the mine right now?

Mitch Krebs

Yes, good question. I will take it and you guys either Frank or [KC], anybody pull me back if I am going in the wrong direction. But that 400,000 ounce minimum that is -- it’s essentially corporate obligation and that’s why it’s accounted for the way it is on our balance sheet and essentially almost like a debt. And so if we stopped mining tomorrow, the remaining amount of that minimum obligation which at this point I think is down to about 120,000 ounces, that would be owed to Franco-Nevada. Now, if we were -- once we choose through that 120,000 ounces and look beyond that minimum, then I think we chose to - if the prices and costs and such were preventing us from showing positive cash flow and we chose to put that mine on care and maintenance that gold stream would just sit there on the asset waiting unit and if the mine would go back into production, but there wouldn't be any, that wouldn't go anywhere, but it would not be, there wouldn't be any obligation to pay anything if we weren’t generating any gold production?

Peter Mitchell

Yes, the only thing that I would add to that Matt, it’s Peter, would be that as Mitch described, we have to choose our way through the minimum ounces 124,000 was the amount remaining at the end of the first quarter. But not only is that in aggregate obligation, there is also actually a 50,000 ounce per year obligation as well that’s tied to that corporate obligation.

Matt Vittorioso - Barclays

Great, thanks for that color. And then just a high level cash flow question; as you mentioned that the CapEx required for La Preciosa and sort of difference between the funds you have now and what would be required for that project and certainly you're desire to head into the project with the funds already on the balance sheet, what are your thoughts for raising additional funds for the project? And along with that, I mean you had some working capital build in the first quarter, what are your high level thoughts for just cash generation from your existing assets for the remainder of the year?

Mitch Krebs

Yes, I'll start Peter, you feel free to chime in too. But the -- we don't have any appetite or interest right now Matt in further cashing up. The only way that I think would we would go down that path is if we got some great surprise on the Preciosa capital costs to where it was reduced from that PEA level to a point that not only made it an easier bite but also compel the economic spend or propel the economics to beat. So positive that it justifies being cashed up to fully fund the capital. I don't know if that's how likely of a scenario that is, but I wouldn't look for us to be tapping into any capital markets throughout the remainder of the year.

In terms of just cash flow from operations and net cash flow at these prices like today's prices, our change in cash sort of from 12-31-13 to year end 2014 should be about a push. A lot of that depends on where we end up on CapEx and how much additional exploration we end up funding above and beyond what we already have budgeted. That's more of a success based model this year that we'll fund additional exploration, if it -- the results justify it. But I don't know if that gives you some sign for it, but that's how we see it and as we sit here today.

Matt Vittorioso - Barclays

No, that's helpful. Thanks guys. I appreciate that.

Operator

Your next question comes from the line of Garrett Nelson from BB&T Capital Markets. Your line is open.

Garrett Nelson - BB&T Capital Markets

Thanks. Hi Mitch. Hi everyone.

Mitch Krebs

Hi Garrett.

Garrett Nelson - BB&T Capital Markets

Most of my questions have been answered but I just want to ask about the higher amortization guidance which you said was mostly due to a revised estimate of the impact of the impairment charge you guys booked in Q4. This guidance implies a step up in amortization in the final three quarters. Can we assume this additional amortization will show up in financials at the Palmarejo and Kensington mine's because those are the assets where you took the impairment charges in Q4?

Mitch Krebs

Peter, you want to take that?

Peter Mitchell

Certainly. Garret that is a accurate assumption yes. And just to shed a little more light on essentially when we pulled our guidance together, we were still kind of calculation base of determining what the appropriate amortization chart was going to be and that’s really the underlying reason as to why that change occurred between the timing of providing our guidance and obviously the information that we released in the first quarter.

Garrett Nelson - BB&T Capital Markets

Okay, thanks a lot.

Mitch Krebs

Thanks Garrett.

Operator

Your next question comes from line of the Dave Katz from JP Morgan. Your line is open.

Dave Katz - JP Morgan

Good morning, I hope you all are well. Appreciate the details up to this point. I want to come back to one of the per ton questions, per ounce pardon me. Questions on cost with regard to Rochester. So the ore tons placed decreased a fair amount and sequentially heading into 1Q, looking out at the rest of the year how do you expect that to drive the per ounce cost? Because it sounded like you guys were saying that the per ounce cost should continue to decrease through the rest of the year. Did I hear that correctly?

Mitch Krebs

Frank or Peter you guys want to take that.

Peter Mitchell

Well, in the first quarter, the tonnage placed was off a bit from what we had achieved in the fourth quarter of last year. Plans are to push that back up to higher levels so we will be more ounces out there, more or less relatively [counts] in grade for gold and silver. So on a unit cost basis we should see some improvement there.

Dave Katz - JP Morgan

Okay, then if I look at the cost from the first quarter, the production cost applicable to sales and I annualized that. That was around $428 million on an annualized basis. But yet your guiding 500 to 530, at Rochester you are indicating that the cost understood the total cost should go up, but that leaves -- per ounce cost is moving down. What is causing the rest of the movement and annualized total cost to go up I guess on the low-end of guidance $25 million per quarter?

Mitch Krebs

That’s a good question and we thought about that in the quarter-end process here in terms of how to handle our cost guidance and whether we should move it down or not. And I guess we just came up David, on the side of the coin that suggest it let’s just leave it as it is. This company historically has a hard time meeting and beating guidance.

If we get into the second half of the year and that still seems like that’s too high than we can pull it in once we have fewer months of the year left. I just hate to see us do something now on pulling back guidance or pulling down our cost guidance and then something unforeseen comes along and then we’ve got back into that trap of having to them adjust the guidance again. And I just want to keep that in achievable level for now and when we have a higher confidence level then we’ll make the necessary adjustments.

Dave Katz - JP Morgan

Okay, understood. And then we got some reports that the Bolivian President labeled contract between cooperatives and foreign firms as I believe the term use was Anti-National and you said those involved I think, the Bolivians involved in signing them should be tried for treason. Would you have any color on that, whether you have any of those types of contracts and in that environment of working [Roderick] how you guys manage to maintain a co-pathetic relationship with the government does not suffer any economic load carried to mine claim?

Mitch Krebs

Yes, it’s been an interesting time in Bolivia, there are elections this fall, I don’t care where you are that drives funny behavior in any country it seems. But President Morales, his administration, the private sector, the unions and the local cooperatives we’ve all collectively been working on an updated revised mining law for the last three years and that’s getting some final pieces put on and I wouldn’t be surprised if Congress there passes the new mining law here in the next couple of weeks and then ultimately it gets sign into law by the President prior to the elections this fall.

There has been a dust up on some -- as the negotiations on the mining law progressed, the cooperatives and the government and this is all in the public domain we’re having some challenging discussions and as topic of validity or legality of old contracts, the cooperatives had signed with private companies become a hot topic and they listed a whole bunch of different contracts that cooperatives have signed overtime that they are calling into question.

And there is two that were on that list that are our subsidiary called Manquiri. And the whole treason thing that you mentioned there was really -- it’s something that they’re focusing on the private companies like us or Manquiri, our subsidiary there. They’re more focused on the people who entered into those contracts from the cooperatives side or from the COMIBOL side, which is the state-owned mining company there. I don’t know what they’re going to come out of that if anything, but there was some news about that, there has been some discussions out there about it, but it doesn’t seem to be a key driver of anything.

I think the bigger issue there is the mining law progress. And Morales has been very positive on [May Davis] here which historically in that country has led to some -- has been a day of some unpredictable decisions. He was -- the need to not do any kind of nationalizations ever again in Bolivia. He seems to have really turn the page on that concept which obviously is a positive for our industry, as well as others.

So we continue to just do the same thing that we’ve always done. I mean we work well with the cooperatives, we’ve got great community relations, our folks in La Paz are very tied in with federal government and it’s an open dialog in one way I think we feel like we have a glimpse of the table and -- and a fair amount of transparency and we continue to mine there and do well at it. So, but it does take a fair amount of time and effort on the part of a lot of good people.

Dave Katz - JP Morgan

Understood, but with free cash flow from that mine over the last three quarters less than $12 million. Even if any change to the mining lot doesn’t eventualize or manifest itself from nationalization it would seem that the cushion is relatively thin. Do you envision a situation that change in the law that would make that mine uneconomic from the point of view of quarter?

Mitch Krebs

I don’t know. I think there could be, I don't want to get into what may or may not be in the law. But everything I've seen there would be some tweaks and different things including potentially some taxes or royalty rates even. But it's all -- it's not nailed down and none of it would be material in terms of impact to our cash flow there.

Dave Katz - JP Morgan

Okay. Thank you very much.

Mitch Krebs

You bet Dave.

Operator

Your next question comes from the line of Chris Thompson from Raymond James. Your line is open.

Chris Thompson - Raymond James

Hey guys. I just got a follow-on question very quickly on Kensington. So I noticed you’re your mill throughput there was 1,800 ton a day for the quarter. Again, is that sustainable, is that -- sort of throughput for the year?

Mitch Krebs

Frank tell me -- fill in if I don't hit this right. But yes, it is in fact maybe a little bit more than that, but that's a good run rate. I think where we'll see a little bit of a pickup is in the average grade I think in the first quarter don’t have it in front me, I think it was like a 0.18 ounces per ton. And I think we'll see a little bit of department mine plan at least calls for a slight uptick in the average grade as we go through the year.

Chris Thompson - Raymond James

Right. Would you say that’s sort of more in line with what you guys delivered last year as far as the grade goes?

Mitch Krebs

Well, the fourth quarter was certainly a bit of an anomaly in terms of upgrade and I wouldn't benchmark off of the fourth quarter. But I think in terms of overall grade for the full year of 2014 versus 2013 will be lower this year at that higher tonnage. And that's like we’ve talked about that's by design. And we think that ultimately gets us more cash flow and more value out of Kensington. Frank do you have anything to add to that?

Frank Hanagarne

No, just to circle back to a couple of things. The answer to that is 1,800 tons per day is sustainable, the answer is yes. In fact, we permitted process up to 2,000 tons per day when we average 1,800 -- actually up to very close to that 2,000 ton per day milling rate. Any time that has to be supported by the mining rate that's sustainable as well.

If you think about this year versus the last year. This year we're planning stronger production, mine plans are oriented around stronger production in the second half of the year. But at the end of the year, we expect to see something quite comparable to what was achieved last year.

Chris Thompson - Raymond James

Great, that's good. Thanks guys.

Mitch Krebs

No problem Chris.

Operator

Your next question comes from the line of Chris Lichtenheldt from Dundee Capital Market. Your line is open.

Chris Lichtenheldt - Dundee Capital Market

Hey, guys. One quick follow-up on the inventory you have on the leach pad that amounts to $94 million on the balance sheet. Is that a run rate level now or will that actually accumulate further or should that be coming lower as you sell those ounces? Can you just answer that quickly if you don't mind?

Peter Mitchell

Yes certainly, it's Peter. That has certainly a leveling off and we will see a modest drawdown I think over the course of the year.

Chris Lichtenheldt - Dundee Capital Market

Okay. All right, good enough. Thank you.

Mitch Krebs

Sure.

Operator

There are no further questions at this time. I’ll turn the call back over to Mitch Krebs.

Mitch Krebs

Okay, thanks. We appreciate your interest and I love all the questions, just kind of why we're doing this call this way to leave as much time for Q&A, I think it's great. So I appreciate everybody's time. And I am encouraged by the progress we have made in the first quarter, but there is still obviously a lot of work to be done and we are committed to operating consistently and efficiently. And we look forward to updating you on our progress on these key items over of course of the year. So, thanks again for your time. Have a good rest of the day.

Operator

This concludes today’s conference call. You may now disconnect.

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