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Lake Shore Gold Corporation (NYSEMKT:LSG)

Q2 2014 Earnings Conference Call

July 31, 2014 3:00 PM ET

Executives

Mark Utting - VP, IR

Tony Makuch - President and CEO

Phil Yee - CEO

Meri Verli - VP, Finance

Analysts

Derek MacPherson - M Partners

Kerry Smith - Haywood Securities

Stephen Walker - RBC Capital Markets

Operator

Good afternoon my name is Jay and I will be your conference operator today. At this time, I would like to welcome everyone to the Lake Shore Gold Second Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions) Thank you. And I would now like to hand the call over to Mr. Mark Utting, Vice President of Investor Relations with Lake Shore Gold. Please go ahead sir.

Mark Utting

Thanks very much, operator. And good afternoon everybody and thank you for participating in today’s call to go over Lake Shore Gold’s second quarter and six months 2014 results. With me today are Tony Makuch, our President and CEO; Phil Yee, our CFO; as well as several other members of our management team.

Slides accompanying today’s remarks are available on a viewer advanced basis, on the webcast and on our Web site at www.lsgold.com. Following the presentation we will be happy to open the call to questions. Participants are reminded that during the call some of the comments made will be forward-looking statements. A cautionary statement around forward-looking information is provided on Slide 2 of the presentation and is available on our Web site.

With that, I’d like to turn the call over to Tony Makuch, President and CEO of Lake Shore Gold.

Tony Makuch

Okay. Thanks Mark and thanks everybody for being on the call and listening to us give an update on the quarter and also again I would like to take the time to thank the people and all the stakeholders and employees of Lake Shore Gold and that people who support us in terms of contractors and in the communities, the local communities around Timmins both the First Nations communities and the community of Timmins as a whole for their support. Really our success is based on lot of hard work of a lot of other people. We had a very good quarter and we’re having a very good year. But we just sit here and get the chance to tell you about it and get to talk proudly and feel good about it. In the end it’s a result of a lot of other people that do the work, I would like to thank you all.

Anyway turning to Slide 3, just starting off the second quarter as outlined 2014 was a record quarter for Lake Shore Gold. Production in the quarter totaled 52,300 ounces that’s up 70% from the second quarter of 2013. The production was based on its processing almost over 309,000 tonnes of ore at an average rate of 5.4 grams per tonne and both gold poured and sales were a record at 53,500 ounces each.

Turning to Slide 4, on the cost front. We achieved cash operating cost of 556 per ounce much better than the 908 per ounce we recorded in the second quarter of 2013. All-in sustaining costs were $784 per ounce 38% better than a year earlier and our CapEx for the quarter was just under $12 million, very much in line with our expectations. During the quarter we increased our cash position to $53 million and very importantly net earnings for the second quarter of 2014 were $13.1 million or $0.03 per share.

Now going to Slide 5, for just a sense on how we’re doing in the first half of the year. It was record year production with just -- record six months I should say, production just shy of 97,000 ounces, that’s about an 80% improvement from the first six months of 2013. Gold poured was 99,200 ounces, 90% higher year-over-year and our gold sales were 96,500 ounces and 80% increase from the first six months of 2013.

Turning to our costs, cash operating costs were $585 an ounce a 38% improvement and well below our full year target for 2014 likewise all-in sustaining costs were very strong at 862 per ounce. I’ll talk more about our targets in a moment but clearly we’re tracking very well against our guidance. Our capital expenditures for the first six months of 2014 were $24.5 million again very much in line with our plan and our expectations. And we increased our cash to the end of June by about $20 million from the beginning of the year. And we will point out that our growth in cash and bullion is after debt repayment and that includes a $10 million, lump sum early payment or prepayment on our standby line of credit just brought in on June 4th. Finally we generated strong profitability in the first half of the year with net earnings of $17.8 million or $0.04 per share.

Now going to Slide 7, looking at our guidance for 2014 at the midway mark, we’re in very good shape. Based on the first half of production we now expect to achieve the top-end of our target of 160,000 to 180,000 ounces of production. We anticipate grades averaging close to the reserve rates in the second half of this year which will moderate production somewhat from the 96,900 ounces achieved in the first half of the year.

In terms of our cash operating and all-in sustaining cost our first half numbers were better than our target ranges. For the full year we now expect to achieve at least the low-end of our guidance that potentially could beat both our target ranges. Where we come in for the full year will obviously depend largely on our production levels and to some extent on the exchange rates.

Slide 8, takes a more broader view of our recent results. And as you can see our performance really took off starting in the fourth quarter of last year. By then we had completed on mill expansion and developed our mines to the point to being able to maintain production levels well over 3,000 tonnes per day. Looking at the slide, I would say we have had five consecutive quarters of very strong results, if you go back to the second quarter of last year we exceeded our existing production capacity of 25,000 tonnes per day, in fact at the time the 30,800 ounces produced in last year’s second quarter was a record performance for the Company and by a fair margin.

In the third quarter of 2013, we commissioned the mill and we did very well considering we lost about half a month in the -- in doing that work in processing. On the cost front, our unit cost have shown excellent improvement as we’ve increased throughput and completed our capital of programs, volumes have gone up which obviously was a major factor in lowering unit costs and we also have become more efficient and productive. And as I said earlier, we completed a lot of our infrastructure now we’re getting the chance to get the benefit from that infrastructure.

Going to Slide 9, it shows the progress we have made in growing production and reducing unit costs, sorry the progress we’ve made in growing production and reducing our unit costs leads us to what we show in here in Slide 9, our lower point in cash and volume was the end of September just as we finished the mill expansion, since then we have grown our cash and volume by about $45 million. And I would say, as we approach 60 million we feel that our cash is getting close to an optimal level. At higher levels of cash we will look for ways to use it to mainly to further reduce debt and increase our investment to extend mine life and possibly accelerate some of the other projects. So our goal in extending mine life to get more aggressive on our exploration programs again.

With that I’ll turn the call over to Phil Yee our CFO to look more closely at the financial numbers.

Phil Yee

Thanks, Tony, good afternoon everyone. Now looking at Slide 10 we reported strong financial results in the second quarter. Revenues for quarter two 2014 were up 89% looking over the same period last year. As the impact of a 94% increase in sales to 53,500 ounces more than offset a 3% reduction in the average selling price.

Cash earnings for mine operations in Q2 of 2014 more than tripled to 42.7 million from the 13.8 million that was reported in the prior year’s second quarter. This was due mainly to higher revenues and lower unit cash operating costs in quarter two of 2014. Earnings from mine operations were 22.3 million compared to 1.8 million in the second quarter last year.

As Tony mentioned we generated net earnings in the second quarter of 13.1 million or $0.03 per share compared to a net loss of 5.4 million a year ago. The higher net earnings in quarter two of 2014 was again the result of higher revenues and lower cash operating cost and in addition quarter two 2013 included a $4.3 million loss from discontinued operations related to the sale of the company’s Mexican subsidiary in 2013.

Looking at our cash flow, cash flow from continuing operations after 10 years of working capital totaled 36.8 million in the second quarter of 2014. That compared to 7.7 million in the second quarter of last year. Again as Tony mentioned we increased our cash position to 5.3 million, sorry, 53 million as of June 30, 2014 and as of the end of July our cash position approximates 60 million. Our strong operating results in quarter two of 2014 for the significant accrued cash flow, cash position and level of profitability in 2014.

Turning to the next slide, Slide 11, revenues for the six months ended June 30, 2014 were 136.6 million an increase of 65% from the same period in 2013, an 80% increase in gold sales more than offset an 8% reduction in the average Canadian dollar gold price and accounting for the strong growth in revenues. Cash earnings from mine operations more than doubled from the 2013 level to about 74.4 million, again this was due to the higher revenues and lower unit cash operating costs in the first half of 2014.

Earnings from mine operations was keeping higher than a year ago reaching 36.7 million and net earnings for the first six months of 2014 totaled 17.8 million or $0.04 per common share compared to a loss of 6.1 million a year. Cash flow from operating activities reached 61.8 million in the first half of 2014 up from 23.9 million recorded in the first half of last year.

Moving onto the next slide, as you can see our financial results have improved sharply in both the second quarter and first half of 2014 compared to the same period in 2013. This slide focuses on our key driver of our strong results in 2014 to-date, it looks at our margin as measured by the average realizes price let all-in sustaining costs in each period both in U.S. dollars and Canadian dollars.

As you can see by looking at the slide despite lower gold prices both quarter-to-quarter and year-to-date we achieved substantial improvement [indiscernible] due to the reduced bringing in all-in sustaining cost in 2014. On a percentage basis our margin increased to 39% in the second quarter of 2014 from the 10% in the previous quarter -- in the same quarter last year. Year-to-date the margin was approximately 33% up from 7% in the previous year.

Tony previously talked about our quarterly trend in both cash from operating and all-in sustaining costs a few minutes ago, that improvement probably to go to our production growth has been a very critical milestone, one that has allowed us to strengthen our balance sheet and report solid profitability so far this year.

I’ll now turn the call back over to Tony.

Tony Makuch

Okay. Thanks, Phil. And just getting back to the last slide in our deck Slide 14, to summarize as you can -- we have a very clear plan for growing value of our company. So far in 2014 we have shown solid execution and we’ll continue to work very hard to achieve further progress and meet our targets, meet or beat our targets for the year. First and foremost our plan is increasing valuation afforded at our current business. Doing that comes with few things as outlined; it involves consistently achieving our key production cost targets as I have just said. And we have done that so far this year and again we intend to do better than our targets.

It also involved us generating our cash to build up our cash position. As mentioned earlier with well over -- well our target was to get our cash above $50 million. We are at that point now and we’re near any point where we can now more proactively deploy capital revenue and put it on our balance sheet. And in terms of deploying capital our goals were to continue to reduce debt and help in terms of extend mine life. And from a point of reducing debt, we are on track to repay $25 million of debt for this year. Going to where we are, we have 10 more payments on a gold MEK note to complete that by May of next year and we’re just sitting then with $20 million on our standby line which we’re going to look at ways to reduce overtime.

And then with execution and then building up our balance sheet and then looking towards debt repayment, one of the next more important, very important keys for us is to begin drilling to extend mine life and in fact we’re increasing the amount of drilling, we’re going to complete this year. We have plans for creating value also involves permitting work to advance our projects and I can tell you that we’re carrying out drilling, engineering and metallurgical work at or other projects Fenn-Gib, Gold River, Vogel and the Bell Creek Complex, the Bell Creek Deep. With a view to outline what the value of these projects could be? How they could be advanced into the Company as it is for sustainable production in future years and or to fund growth, finance growth -- demonstrate growth for the Company.

And then finally we’re coming back to our roots, with the company started as an exploration company we’re getting ourselves back into the exploration business, we’ll be investing additional 1.6 million in the second half of this year on the new surface exploration program outside but close to our existing mines, mainly in the Timmins West Complex area down along the 144 trend. We’re pleased with our strong performance so far in 2014 and are on track for continued strong results going forward.

Thank you. And with that we’ll conclude the presentation and be happy to take any questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from Derek MacPherson with M Partners. Your line is open.

Derek MacPherson - M Partners

Just sort of two quick questions and it’s more of just a breakdown on how that’s been. You talked an additional 1.6 million in exploration. Can you give us an idea what the total CapEx both development and explorations can be for the balance of the year then how much of that exploration is going to be expensed?

Tony Makuch

Well I would say the exploration and developments in the second half of the year maybe -- should be slightly higher than the first half but not much somewhere between 25 million and 30 million. In terms of exploration to the expense, refer that to Meri. Meri Verli is our Vice President of Finance who is on the call.

Meri Verli

Basically the spending that we do for 144, we spent at the 144 properties that’s going to the expense but everything else related to Bell Creek Deep or Gold River Trend all of that or Fenn-Gib, all of that will be capitalized.

Tony Makuch

The reason for that is on the projects where we have a resource currently we will capitalize the exploration costs on a project where it’s new exploration in an area where we don’t have the deposit or resource to find and we expense that.

Derek MacPherson - M Partners

So that 1.6 million and for Cyprus exploration around Timmins West, that’s essentially all going to be expensed then?

Tony Makuch

I would say pretty close, yes.

Operator

Your next question comes from Kerry Smith with Haywood Securities. Your line is open.

Kerry Smith - Haywood Securities

Tony or maybe I am not sure maybe Tony what probably do you think after six months of kind of running the mill at steady state. What do you think is a reasonable long-term average throughput rate for that plant? Is it 3,400 tonnes a day or is it 3,300 tonnes a day? I am just trying to get a sense as to how you think the longer-term throughout should be thought about?

Tony Makuch

Well the plant itself, we’re running at 3,300 tonnes, 3,400 tonnes a day. We don’t think we’ve actually reached the long-term capacity of that plant. The capacity and the feature of our plant is really more, right now limited to what we can deliver from the mines and what we can deliver from the mines is referenced by tonnes per vertical meter where we’re in terms of up mining and the size of our stocks and ability to deliver or mine ore effectively at the proper grade to the mill. So like both mines have additional capabilities to -- in terms of the infrastructure, which whether it’s a shaft system or a hauling system up the ranch to haul much more ore but it is how much ore we have that we understand that we can mine at this point in time. So, the mill -- we might have to spend a little bit of money on a few things to fix up but we probably could get the mill averaging even 10% to 15% higher than we have been running. We think we still have that extra capacity there, but we don’t necessary know we have that capacity in our mine plant, mine operations or ore bodies at this point in time.

Kerry Smith - Haywood Securities

Okay. So…

Tony Makuch

But we are going to work to keep that -- to do better in that part of drilling et cetera, but at the same time we’re cognizant of making sure we maximize our margins all the time.

Kerry Smith - Haywood Securities

Right. And if you want to run at 10% to 15% higher throughput what sort of expenditure would that require, or what needs to be done to the mill until then?

Tony Makuch

Well, look we have qualified 10% improvement from where we are right now probably nothing, maybe 15%, we -- one area we have, that we have to address is our -- we’re looking at is our -- is the strip circuit in the mill and that’s where we extract the goal from the carbon. And it’s -- there’s a balance that we have one of our criteria that we measure is our golden inventory and versus, until we’re trying to manage gold poured -- gold recovered with gold poured and we’re also trying to manage gold sales to be close to gold poured. So we don’t carry big inventories. So there are strip circuit especially has a grade increases and the production increases, we start to put it, get to the point where we’re really loading up our carbon, losing efficiency and have potential for losses. So that’s one area which we would have to do some work on. And that might cost us somewhere better $5 million and $12 million to fix up, but that would give us capabilities and depending on those numbers I gave you whether we want to have that circuit or that part of the plant and capable of going through to the full capacity that we thought about earlier before about 65,000 tonnes a day. We really have to spend the money, but it’s how we’re managing our gold inventory and gold losses another good plan.

Kerry Smith - Haywood Securities

Right. So, Tony look in Q1 you were around, I think it was just slightly over 31,000 tonnes a day on average and in Q2, I think it was around 34,000 so was the business between Q1 and Q2 is simply a function of you having oil available in the mines to deliver or was it a function of weather or some other constraint?

Tony Makuch

Well, in Q1 we took the mill down for almost five days to change out our liners.

Kerry Smith - Haywood Securities

Okay.

Tony Makuch

So that had an impact in Q1, as well as some of it was slight or delivery issues and you didn’t have winter, winter didn’t affect us necessarily at the mill but in terms of deliver, in terms of mining there was a few things but one of the bigger things was a five day shutdown in the mill for maintenance in the first quarter.

Kerry Smith - Haywood Securities

Okay. You didn’t obviously have that in Q2?

Tony Makuch

No, we didn’t have that in Q2.

Kerry Smith - Haywood Securities

Right. Okay. So maybe somewhere in the middle is kind of an average that you think, you would be comfortable out there for sure?

Tony Makuch

Between 31…

Kerry Smith - Haywood Securities

Between 3150 and yes, if they call it 3300 or something somewhere in that level you would be comfortable of that range?

Tony Makuch

Yes. I would be very comfortable with that range and I think even what we achieved in Q2 is a comfortable range.

Kerry Smith - Haywood Securities

And have you thought about what you might use for a budget throughput for next year on average?

Tony Makuch

Yes. I mean, we’re going through a planning for budgeting, again still thinking about where we are with resource reserve and mine planning et cetera. We’re looking at steady state Timmins mine somewhere around, money is 2250 to 2700 tonnes a day and they’ll creek somewhere between 750 and 800 tonnes a day, so that sort of production rate averaging somewhere around 3350 to 3400 tonnes a day overall for the year.

Kerry Smith - Haywood Securities

Right. Okay. And then you’ll finalize your budget here the next four month, I suppose we’ll get some work even Q3?

Tony Makuch

Yes. We will be -- our budget plan is to be completed before mid December.

Kerry Smith - Haywood Securities

Right. Okay. And Tony maybe just one another quick question if I could, with the COO role now vacant, but are you kind of comfortable that everything is working the way you’d like it to work and you don’t really need somebody in that role and you are kind of confident that you can sort of keep going with the personnel you’ve got?

Tony Makuch

Well we as I say very conference, that we have a very strong team, we have very team in the Company in terms of the role overtime it’s probably a role, we’re going to look to fill. For a number of reasons and in terms of where we want to take the company and how we work, but we are -- when we find, when we are able to get to the point where we find the right person to look out there, the operations are running very well and you can say we are very happy and we’ve got some exceptionally good people in a lot of different areas operating at our mines and our mill plant and engineering et cetera, they really need in the company and getting it there. So it’s a strong team effort.

Operator

(Operator Instructions) The next question comes from Andy Schopick, private investor. Your line is open.

Unidentified Analyst

Thank you very much. This may be the first time I have participated in one of your calls. And looking at your financials, the question I’d really like to ask you Tony is whether the company is fundamentally opposed in any way to doing a reverse stock split seems to me that among one of the challenges you have in terms of the investor side of things and getting your stock price up to a more reasonable level would be to shrink that share count. And that’s my first question that I would like to ask you about whether you have any plans to address this 400 million share plus capitalization that you have at this time?

Tony Makuch

Well okay I mean I hear your question the thing in it. It is something that is brought up with us and with the Board at times we discuss that. And you can say is that going to help us get our share value up. I think our priorities have to be together share value up and there is financial engineering things we can try to do, but we’re really trying to maximize our operations, improve our margin, build up our cash strengthen our balance sheet, pay down our debt. Show what we have with these other projects and what they can do. Because we have three other multi-million large projects and do some exploration get that. That’s our priority and we think those things collectively will really help in terms of enhancing shareholder value for the company. There will be a point in time where something like doing a stock consolidation could help as well and we recognize the importance of that. But of all of our priorities right now, they stick into the fundamentals of our businesses, what we’re really focusing on.

Unidentified Analyst

Well I certainly understand and appreciate that response. But clearly this has been an extremely challenging period for smaller producers, 150,000 to 200,000 ounce producers such as yourself cost of capital has been extremely high, lot of challenges the financing, operations and of course in your case you have total long-term debt right now over $100 million and that Sprott facility was a pretty expensive arrangement as well. Does that Sprott facility expire at any time? Or what are the terms actually associated with it?

Tony Makuch

The Sprott facility does expire, and actually I’ll Phil Yee our Chief Financial Officer is on the call, it is may be a good question for him to answer.

Unidentified Analyst

Sure.

Phil Yee

Well the Sprott facility, I think as you may be aware is made up of two components, there is gold is node, gold linked portion, golden node and there is a standby line. The gold link node is paid on monthly and as of the end of July there is 10 months remaining on that. So that will be completed by May of next year, May of 2015. And the standby line has been paid down. We’ve made a $10 million payment beginning of June of this year. So our balance outstanding is now at 20 million. The amortization on that begins June of next year right after the paid out. We do have the option of paying that down earlier if we wish. There are prepayment terms attached to that but we do have that option. So the amortization period from June of next year is over 18 months, so that would take it into 2016.

Unidentified Analyst

And when you say the amortization period, what would the amortization actually be in terms of dollars?

Tony Makuch

Well you take the outstanding balance at the time, right now the outstanding balance is 20 million and basically you can pay it over 18 months.

Unidentified Analyst

So take the 20 million…

Tony Makuch

1.1 million a month.

Unidentified Analyst

Say 20 million divided by 18 times the 9.75% compounded monthly. Right?

Tony Makuch

Yes.

Operator

(Operator Instructions) And your next question comes from Stephen Walker with RBC Capital Markets. Your line is open.

Stephen Walker - RBC Capital Markets

Just wanted to get a sense Tony on where you are with respect to the development currently? And then talk a little bit about proposed or necessary development going forward. At Timmins West and Bell Creek, how many months of development are you ahead of production here? What you have currently in place in the way of stock development?

Tony Makuch

We’re pretty close right now, if were to stop all development today, tell everybody to go home and take six months off. So we’d be able to maintain sustain current production levels to probably next March, probably tracking in that type of line.

Stephen Walker - RBC Capital Markets

Nine months ahead of it.

Tony Makuch

Give or take a few little things here and there and give or take a few diamond drill holes here and there but that’s pretty much where we’re tracking. So the work we’re doing now going forward the rest of this year is really helping us to build on our plan for 2015 and 2016.

Stephen Walker - RBC Capital Markets

With respect to that plan when we look at sort of which in the reserves, 600,000 ounces in Timmins West and Bell Creek, that’s fully developed, I would assume you have got all the infrastructure that’s up sublevels and the levels all in place for that development?

Tony Makuch

For that reserve the whole 600,000 ounces, pretty much all of Bell Creek I would say not quite all of what’s there for Timmins West because some of that is part of our sustaining CapEx. But again we’re getting quite a distance away, the main part there would be the down ramp of Timmins mine, it’s sitting just -- definitely it’s below 900 meter level, currently we want to extend that ramp down to just below 1,200 meters so we still got under 300 meter vertical to goal 200 somewhat meter vertical to goal. And that we’re still completing the up ramp at Thunder Creek which would connect to our ramp from surface, which is another maybe 100 meters of vertical development.

Stephen Walker - RBC Capital Markets

So 300 meters depth and 100 in vertical and again that’s presumably part of 2015 budget plan?

Tony Makuch

Well, that will be part of 2015 and 2016 plan, because we don’t need to get it all developed and that’s and again that’s part of some of that is part of our, sorry, it’s all in our sustaining capital costs.

Stephen Walker - RBC Capital Markets

And to get the, say the 700,000 ounces in Timmins West measured and indicated into reserves and into a mine plan that presumably would be part of that 300 and 100 meter and you I guess with the sublevels and all the development in place to get access that 700,000 ounces, yes?

Tony Makuch

Yes. Plus there is drilling associated with that too, so I think more detail drilling to take it at the stock level.

Stephen Walker - RBC Capital Markets

Okay. And then Bell Creek there is 672,000 ounces obviously at further at depth, is that accessible from another turndown on the ramp at Bell Creek or is that all material that would a part of it accessible, what you think is accessible if you push the ramp down that much further beyond this 100,000 ounces that’s already in the reserves?

Tony Makuch

Well, we’re doing that work right, Steve, that’s a good question and it’s the stuff where we’ve been on. We’re looking at a number of trucks we think we can continue to go down a little bit deeper with the ramp we are running 442 tonne trucks there, we keep the availability up, we know we can do somewhere around 15,000 tons a day of all from the area we’re in. Yes, so we have the option to go a little bit with some of the things we’re looking at those is efficiency we could get some bigger trucks that do it in affect the ventilation we are looking at reestablishing our loading pocket at the 240 meter level at the Bell Creek shaft and then in simple terms if we did that we would truck to that location and hoist it to rest of the way and that would give us with our current arrangement the ability to go down to a 1050 meter level.

Stephen Walker - RBC Capital Markets

And so that would presumably without taking a shaft could that access $150 ounces are going another…

Tony Makuch

I think it’s closer to 400,000 ounces down there.

Stephen Walker - RBC Capital Markets

400. Okay. But that would require change out of equipment and infrastructure from on the loading pockets and so forth?

Tony Makuch

I know there’s loading pockets there, yes we would, we would have to basically make it, we’ve never commissioned to, we commissioned from when it was closed down, so some of the steel will need to be changed and we just have to get the head frame and hoisting plant backup to commissioning status for skipping, the skips are there we’ve run the shaft, we’ve done timber work in the shaft already, we’re not talking significant capital but it is stuff that where we’re working on as part of our plan for accessing the deep part.

Stephen Walker - RBC Capital Markets

So if I look at kind of rules of thumb just straight capital and we’ve got 400 meters I guess it’s a 5,000 meters 100 at Bill Creek and 400 up and down total at Timmins West, you are probably really looking at $25 million-$30 million there, you have got the sublevels and the levels probably another call it round numbers $20 million to $30 million those mines maybe $30 million to $40 million of book mines and then the drilling and the infrastructure that’s needed, it’s reasonable to assume over the next 24 months, summer between 75 million and 100 million in potential capital including the drilling and including all the infrastructure to be in a place call it year-end 2016 to be mining these additional, measured an indicated resources?

Tony Makuch

How much did you say, 75 million?

Stephen Walker - RBC Capital Markets

75 or would it be as much as that?

Tony Makuch

Well, it sounds a little bit high, I think, effectively if you want to look at the ramps for us, for every, our ramp probably to 1 so for every 100 meters vertical we have dried 100 meters of ramp and use above $3000 of meter all in our $3500 a meter all in, it’s everything at electrical power, ventilation systems et cetera.

Stephen Walker - RBC Capital Markets

All the infrastructure there?

Tony Makuch

Yes. All the infrastructure. And then I mean I can get somebody else to give you the more I can’t really comment on how many meters of development per sublevel we would do, but I would there and roughly I can get that developed, we would be getting our shaft operational like Bell Creek, you’re talking the Bell Creek here getting shaft operational the level of Bell Creek, we’re not talking about, we’re talking of numbers and I should be careful what I say, but it’s what, it’s going to be under $15 million, way much and potentially much under that.

Stephen Walker - RBC Capital Markets

I guess one of things it would be helpful and what I am getting at here is with relatively short reserve life but obviously another 3 to 5 years of measured and indicated resource life the market, if you can give us guidance at year-end with, the two year picture looks like, what it looks like once you finish you plans for 2014 to also consider 2015 also consider ’16, so that can get a sense of what the five year or the six year plan is going to look like, the problem the lot of investors are going to have at some point is with call it 2.5 years or 3 years of reserves and then plans in progress and two years, four, five, six, seven and more detail you can give us going forward, more confidence investors will have when you start stepping out to test, whether it’s the Gold River targets or Marhill or Vogel or some of these satellite deposits. I think market feels much more comfortable that you have got a as you said earlier business that is sustainable between five, six, seven, eight years mine life at your existing mines.

Tony Makuch

Yes I agree with you 100% Stephen that is, what you are saying is what we’re working on, what we’ve actually had discussions with the Board and is what we recognize as a priority. We will show sustainability in our current business, really put the plants together and that is and these are part of our priorities, we got to replace reserves at Timmins West and Bell Creek, looking to getting reserves up there much longer life at those locations. We’re doing infrastructure, getting engineering done et cetera.

We have that ability to do that kind of work now and the first few years was to just get our operations in order. So we have that, we have a sustainable operation for currently three to five years. And we’re working towards extending that much longer. So exactly like you said and some of it we think we can be in a good position before the end of this year or by the end of this year to be able to maybe demonstrate their shareholders of what it is and meeting to build upon that with the projects.

Things like some of work we’re doing besides Timmins West we don’t talk about business, lot of the work we’re doing at the Bell Creek Deep, the Labine Deep on Bell Creek is associated with really getting to understanding what the long-term plan could be for the Bell Creek mine. Steve that’s a good point, we’ll keep that in mind when we’re working on.

Operator

(Operator Instructions) We have no further questions at this time. I’ll turn the call back Mr. Utting.

Mark Utting

Well I just want to again thank everyone for joining us this afternoon. It’s been a pleasure to discuss our second quarter six months performance and give a bit of an outlook. We’d be consistent with our practice; we’ll be looking to get our Q3 production results nearly October as well as preliminary cost numbers with our finance follow after that. We look forward to talking to you then. Thanks very much.

Operator

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

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